Excellent quote about the market and Depression from the Davis Dynasty

[NumquamPerdo]

Another interesting article dispelling myths about the 1930's:

 

http://online.barrons.com/article/SB123637914471857307.html?page=sp

[scorpioncapital]

Isn't there a risk with options that a company may distribute or "liquidate" value via special dividends which would catch the option holder or put seller without being able to participate in this?

[ubuy2wron]

The key to that quote is in bold "When they’re priced for desperation, they can rally in the face of desperation". 

 

I know for sure they are not priced as low as 1981 at this point.  So are they priced for desperation? 

 

 

 

I am not so sure as you on ,they are not priced as low as 1981, while the mkt is trading at a higher multiple today than it was in 1981 is it really. I could get 13 percent in 10 year treasuries vs a SP multiple of 8 , I suspect that the mkt historians may be arguing equities were historically underpriced on March 2009 when using this relative valuation metric.

[Uccmal]

Thanks for the options tips guys!

 

RE: the Barron's article.  It's interesting in that it shows the low precision (or is it accuracy) of the DJIA at the time.  Including or excluding one company had an enormous effect.  Would a broad measure have shown as bad a downturn?  WE will never know, obviously.

 

Other things of interest.  The bulk of bank closings occurred well into 1931 in response to tightened monetary policy and lack of an FDIC.  The stock market bottom was after that point in 1932.  There was no FDIC or equivalent in other countries (IPF in Canada) to protect peoples savings in the banks.  There is a fascinating video on Calculated Risk Blog of the FDIC taking over Heritage Bank - a 60 Minutes production.  In the case in question the FDIC spent next to nothing, other than labour to rescue the bank.  Helicopter Ben et al are doing the direct opposite to encourage bank stability.

 

Finally, the elimination of dividends, and past writedowns, is paying dividends.  Citi was the first to announce.  I am pretty sure Vikram Pankit wouldn't have said that in this climate if he wasn't sure that was the case.  How long before several of the biggest S&P companies start announcing better than expected results due to rapid build up of their balance sheets? 

[Guest ericopoly]

 

Ericopoly, as the resident options guru, any thoughts on what I'm doing?

 

 

 

I like what you are doing, but I'm no guru.  I wish the $600 strikes would "ask" at $14 again; that was silly.