'A History of the United States in 5 Crashes' book

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WanderingDoc
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'A History of the United States in 5 Crashes' book

Post by WanderingDoc » Sat Oct 28, 2017 5:26 pm

Has anyone read this tome? Just noticed it at my local B&N. Reading about financial topics can be dry but I do appreciate the occasional interesting read.
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Re: 'A History of the United States in 5 Crashes' book

Post by Alexa9 » Sat Oct 28, 2017 7:32 pm

I would imagine a lot of hindsight bias in the book. I bet there are some good lessons in it though.

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Re: 'A History of the United States in 5 Crashes' book

Post by nisiprius » Sat Oct 28, 2017 7:52 pm

I haven't read it, I'll keep it in mind as something to possibly borrow from the library. But on checking the description in Amazon, I find the choice of the "five crashes" disappointing:
The Panic of 1907: When the Knickerbocker Trust Company failed, after a brazen attempt to manipulate the stock market led to a disastrous run on the banks, the Dow lost nearly half its value in weeks. Only billionaire J. P. Morgan was able to save the stock market.

Black Tuesday (1929): As the newly created Federal Reserve System repeatedly adjusted interest rates in all the wrong ways, investment trusts, the darlings of that decade, became the catalyst that caused the bubble to burst, and the Dow fell dramatically, leading swiftly to the Great Depression.

Black Monday (1987): When “portfolio insurance,” a new tool meant to protect investments, instead led to increased losses, and corporate raiders drove stock prices above their real values, the Dow dropped an astonishing 22.6 percent in one day.

The Great Recession (2008): As homeowners began defaulting on mortgages, investment portfolios that contained them collapsed, bringing the nation’s largest banks, much of the economy, and the stock market down with them.

The Flash Crash (2010): When one investment manager, using a runaway computer algorithm that was dangerously unstable and poorly understood, reacted to the economic turmoil in Greece, the stock market took an unprecedentedly sudden plunge, with the Dow shedding 998.5 points (roughly a trillion dollars in valuation) in just minutes.
The history of the United States begins before 1907!
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Re: 'A History of the United States in 5 Crashes' book

Post by AlohaJoe » Sat Oct 28, 2017 8:00 pm

I've read it. It is five unrelated chapters about five crashes. There is no bigger story or relationship between the five. Each of the five crashes has a better book written about it. You get more detail than Wikipedia but less than a standalone book. The choice of crashes isn't explained and has left many reviewers scratching their head -- especially over the lack of the Dotcom Crash, but also no Kennedy Crash, no 1973/74 crash, and so on.

Personally I can't really recommend it much because of that. If there is one particular crash you are interested in, find one of the better books focusing on it. If you wanted to learn more about crashes in general, limiting things to just these five isn't enough. And the lack of a bigger narrative linking the crashes (to mention the massive time gap between the 1929 crash and the 1987 crash with none of the crashes in between covered) was disappointing.

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Re: 'A History of the United States in 5 Crashes' book

Post by WanderingDoc » Sat Oct 28, 2017 8:18 pm

You guys echo my sentiments exactly. I am also unsure why the '1907, 1927, 1987, 2008, and 2010' years are selected as printed on the front of the book.

Looking at another thread in this subforum where it lists the worst loss years during the last 100 years or so, the choices of the book don't see to match up with the severity of the actual history.
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Re: 'A History of the United States in 5 Crashes' book

Post by TravelGeek » Sat Oct 28, 2017 10:11 pm

WanderingDoc wrote:
Sat Oct 28, 2017 8:18 pm
Looking at another thread in this subforum where it lists the worst loss years during the last 100 years or so, the choices of the book don't see to match up with the severity of the actual history.
Perhaps the choices were driven by what the average B&N shopper might recognize/remember or think of when asked about crashes?

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Re: 'A History of the United States in 5 Crashes' book

Post by WanderingDoc » Sat Oct 28, 2017 11:14 pm

Here it is:

This is based on table 13-4 from p. 172 of the 2015 Ibbotson SBBI Classic Yearbook.

Year, decline

1932 79.00%
2009 54.00%
1974 51.86%
1920 50.96%
1938 49.93%
1948 37.18%
1970 35.46%
1907 34.22%
1900 30.41%
1987 27.32%
1962 22.80%
1888 22.04%
1903 21.67%
1898 21.13%
1910 20.55%

So, what happened in 1932? I guess that wasn't worth writing about? And 1974? The book just hops from 1927 to 1987. So two out of the three largest crashes were not important enough to write about? :oops:

I read the 1907 chapter, was actually pretty detailed and interesting. Not sure if I will be finishing the book though.
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Re: 'A History of the United States in 5 Crashes' book

Post by TD2626 » Sun Oct 29, 2017 12:07 am

nisiprius wrote:
Sat Oct 28, 2017 7:52 pm
I haven't read it, I'll keep it in mind as something to possibly borrow from the library. But on checking the description in Amazon, I find the choice of the "five crashes" disappointing:
The Panic of 1907: When the Knickerbocker Trust Company failed, after a brazen attempt to manipulate the stock market led to a disastrous run on the banks, the Dow lost nearly half its value in weeks. Only billionaire J. P. Morgan was able to save the stock market.

Black Tuesday (1929): As the newly created Federal Reserve System repeatedly adjusted interest rates in all the wrong ways, investment trusts, the darlings of that decade, became the catalyst that caused the bubble to burst, and the Dow fell dramatically, leading swiftly to the Great Depression.

Black Monday (1987): When “portfolio insurance,” a new tool meant to protect investments, instead led to increased losses, and corporate raiders drove stock prices above their real values, the Dow dropped an astonishing 22.6 percent in one day.

The Great Recession (2008): As homeowners began defaulting on mortgages, investment portfolios that contained them collapsed, bringing the nation’s largest banks, much of the economy, and the stock market down with them.

The Flash Crash (2010): When one investment manager, using a runaway computer algorithm that was dangerously unstable and poorly understood, reacted to the economic turmoil in Greece, the stock market took an unprecedentedly sudden plunge, with the Dow shedding 998.5 points (roughly a trillion dollars in valuation) in just minutes.
The history of the United States begins before 1907!
These are all interesting crashes. It is illustrative of how crashes can involve recoveries on any timescales - from seconds/minutes/hours (flash crash) to years (2008) to a decade or more (Great Depression).

Good point, though, about there being other crashes in US history. 1837, 1873, and 1893 were quite bad - but no one was alive then so we don't pay enough attention.

Also, looking at other countries can be helpful, as well, especially given Vanguard's inclusion of 40% international stock in Target Date and Life Strategy funds. Japan had enormous crash in the 1980s that it has yet to recover from. The German and Japanese markets experienced declines on the order of 85 to 95% in the 1940s (related to losing the second world war). The Chinese and Russian markets experienced total 100% losses after communist takeovers in the 1900s.

Further, broad market gains and losses are not necessarily representative of what those with tilted portfolios may experience. The high-risk segments of the market (e.g. small-value) could decline far more than large cap stocks.

I feel the common mantra of "Investors in equities need to be prepared for a 50% loss" is dangerous. The better mantra is "Investors in equities need to be willing and able to stay the course even in the event of a decline of 95% or more in some markets that takes decades to recover from, as such an occurrence is possible, though unlikely."

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Re: 'A History of the United States in 5 Crashes' book

Post by Valuethinker » Sun Oct 29, 2017 10:37 am

TD2626 wrote:
Sun Oct 29, 2017 12:07 am


Also, looking at other countries can be helpful, as well, especially given Vanguard's inclusion of 40% international stock in Target Date and Life Strategy funds. Japan had enormous crash in the 1980s that it has yet to recover from. The German and Japanese markets experienced declines on the order of 85 to 95% in the 1940s (related to losing the second world war). The Chinese and Russian markets experienced total 100% losses after communist takeovers in the 1900s.

Further, broad market gains and losses are not necessarily representative of what those with tilted portfolios may experience. The high-risk segments of the market (e.g. small-value) could decline far more than large cap stocks.

I feel the common mantra of "Investors in equities need to be prepared for a 50% loss" is dangerous. The better mantra is "Investors in equities need to be willing and able to stay the course even in the event of a decline of 95% or more in some markets that takes decades to recover from, as such an occurrence is possible, though unlikely."
I agree with your conclusion although "unlikely" is a statistical judgement I don't think we have enough data to make. You'd have to really qualify it "unlikely, assuming late 20th century market capitalism and democracy survive as continuing forms".

A couple of further points:

- I believe the Japanese market peaked in 1990. The Crash has been since then (was worst in the first few years of the 1990s) i.e. not the 1980s

- I'd have to check the number, but on an inflation adjusted basis (inflation was c. 20% at the time) the UK market 1972-74 dropped something close to minus 90%. This is interesting because no war, no revolution, (relative) political stability (government lost an election during the time period), not even vast civil unrest (although some crippling industrial strikes, in particular the coal miners that then caused a 3 Day Working Week, as electricity was only available in 12 hour segments-- in an interesting comment on the modern era, companies moved to 3 x 12 hour shifts, no tea breaks, and productivity went *up*! We should shut the internet down on a similar basis ;-)).

It was just plain old economic misery, the full flower of the death of the postwar Consensus. Marc Levinson's new book on the decade is a good summary of the economic events.

By contrast, I have never been convinced it is meaningful to talk about say 95% losses on the German or Japanese markets. If you were Jewish or other enemy of the Third Reich, or lived in what became East Germany, then you had 100% losses. Similarly starvation killed perhaps 1 million Japanese in 1945, the Tokyo Fire Raid killed more people than either Hiroshima or Nagasaki. And there was hyperinflation, regime collapse and eventually replacement of the currency under a new occupation regime. In such a scenario, were share certificates even honoured? I don't know.

And of course most conquerors are not the US of A in the 20th Century. Had it been left to the French or the British, we might simply have annexed these countries. The pre British rulers of various parts of India (Tipoo Sahip for example) didn't get to keep their possessions. Let alone the Native American chieftains, the Aztecs & Inca Emperors, various African Empires etc.

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Re: 'A History of the United States in 5 Crashes' book

Post by TD2626 » Sun Oct 29, 2017 11:56 pm

Valuethinker wrote:
Sun Oct 29, 2017 10:37 am
TD2626 wrote:
Sun Oct 29, 2017 12:07 am


Also, looking at other countries can be helpful, as well, especially given Vanguard's inclusion of 40% international stock in Target Date and Life Strategy funds. Japan had enormous crash in the 1980s that it has yet to recover from. The German and Japanese markets experienced declines on the order of 85 to 95% in the 1940s (related to losing the second world war). The Chinese and Russian markets experienced total 100% losses after communist takeovers in the 1900s.

Further, broad market gains and losses are not necessarily representative of what those with tilted portfolios may experience. The high-risk segments of the market (e.g. small-value) could decline far more than large cap stocks.

I feel the common mantra of "Investors in equities need to be prepared for a 50% loss" is dangerous. The better mantra is "Investors in equities need to be willing and able to stay the course even in the event of a decline of 95% or more in some markets that takes decades to recover from, as such an occurrence is possible, though unlikely."
I agree with your conclusion although "unlikely" is a statistical judgement I don't think we have enough data to make. You'd have to really qualify it "unlikely, assuming late 20th century market capitalism and democracy survive as continuing forms".
Good point. I wish we could quantify this, but we can't.

A couple of further points:

- I believe the Japanese market peaked in 1990. The Crash has been since then (was worst in the first few years of the 1990s) i.e. not the 1980s
The Nikkei 225 peaked on December 29, 1989 according to this CNN Money article: http://money.cnn.com/2014/12/29/investi ... index.html and according to Wikipedia: https://en.wikipedia.org/wiki/Nikkei_225. Since the bubble rose in the 1980s and fell in the 1990s, it's ambiguous what decade it occurred in.
Given how long the markets there have stayed down, I pretty much refer to it as "that Japan Scenario" with a sense of dread in my voice.
.

- I'd have to check the number, but on an inflation adjusted basis (inflation was c. 20% at the time) the UK market 1972-74 dropped something close to minus 90%. This is interesting because no war, no revolution, (relative) political stability (government lost an election during the time period), not even vast civil unrest (although some crippling industrial strikes, in particular the coal miners that then caused a 3 Day Working Week, as electricity was only available in 12 hour segments-- in an interesting comment on the modern era, companies moved to 3 x 12 hour shifts, no tea breaks, and productivity went *up*! We should shut the internet down on a similar basis ;-)).
Scenarios including the Japan Scenario, US recessions in the 1800s, the US stock market in the early 1970s, and the situation you mention above show that investors (particularly those who tilt towards risky market segments like small-value) should be prepared for 90%+ real declines and recovery times to take decades. That doesn't mean not to invest in stocks. I just think that too often people throw out a 50% decline as a rule of thumb and that could hurt people if the market drops 51%+ and they're not prepared.

It was just plain old economic misery, the full flower of the death of the postwar Consensus. Marc Levinson's new book on the decade is a good summary of the economic events.

By contrast, I have never been convinced it is meaningful to talk about say 95% losses on the German or Japanese markets. If you were Jewish or other enemy of the Third Reich, or lived in what became East Germany, then you had 100% losses. Similarly starvation killed perhaps 1 million Japanese in 1945, the Tokyo Fire Raid killed more people than either Hiroshima or Nagasaki. And there was hyperinflation, regime collapse and eventually replacement of the currency under a new occupation regime. In such a scenario, were share certificates even honoured? I don't know.
Of course, what happened financially to investors is meaningless to the ghastly physical horrors and deaths suffered by millions in WWII. Worrying about stocks during that period in history is inappropriate. However, when I run projections or simulations that say "100% chance of success" I always ask myself if that's really reasonable. Surely there is a chance, albeit small, that something (nuclear war, pandemics, super volcanoes, government collapses, etc) occurs that completely disrupts the plan. I always remind myself that these model outputs are X% chance of success, assuming the markets are still open for business. Note that your "assuming late 20th century market capitalism and democracy survive as continuing forms" is probably a bit restrictive." Vanguard's Emerging Market Index fund has over 30% of its assets in China, which is neither capitalist nor democratic. Wars can occur, governments can collapse or change form, and disasters can happen - but if markets in their general form stay open, and continuity of ownership is maintained, and the war/pandemic/disaster isn't fatal to you or your family, then things will likely work out. A 90 or 95% loss is recoverable - but a 100% loss isn't. Thus, it can be instructive to see whether property rights were maintained in previous chaotic situations or wars. From my studying, it seems that it's hard to make sense of what would happen. It's more or less random what would ultimately be decided regarding investor's fates.

And of course most conquerors are not the US of A in the 20th Century. Had it been left to the French or the British, we might simply have annexed these countries. The pre British rulers of various parts of India (Tipoo Sahip for example) didn't get to keep their possessions. Let alone the Native American chieftains, the Aztecs & Inca Emperors, various African Empires etc.

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Re: 'A History of the United States in 5 Crashes' book

Post by Valuethinker » Mon Oct 30, 2017 3:54 am

TD2626 wrote:
Sun Oct 29, 2017 11:56 pm

By contrast, I have never been convinced it is meaningful to talk about say 95% losses on the German or Japanese markets. If you were Jewish or other enemy of the Third Reich, or lived in what became East Germany, then you had 100% losses. Similarly starvation killed perhaps 1 million Japanese in 1945, the Tokyo Fire Raid killed more people than either Hiroshima or Nagasaki. And there was hyperinflation, regime collapse and eventually replacement of the currency under a new occupation regime. In such a scenario, were share certificates even honoured? I don't know.
Of course, what happened financially to investors is meaningless to the ghastly physical horrors and deaths suffered by millions in WWII. Worrying about stocks during that period in history is inappropriate. However, when I run projections or simulations that say "100% chance of success" I always ask myself if that's really reasonable. Surely there is a chance, albeit small, that something (nuclear war, pandemics, super volcanoes, government collapses, etc) occurs that completely disrupts the plan. I always remind myself that these model outputs are X% chance of success, assuming the markets are still open for business. Note that your "assuming late 20th century market capitalism and democracy survive as continuing forms" is probably a bit restrictive." Vanguard's Emerging Market Index fund has over 30% of its assets in China, which is neither capitalist nor democratic. Wars can occur, governments can collapse or change form, and disasters can happen - but if markets in their general form stay open, and continuity of ownership is maintained, and the war/pandemic/disaster isn't fatal to you or your family, then things will likely work out. A 90 or 95% loss is recoverable - but a 100% loss isn't. Thus, it can be instructive to see whether property rights were maintained in previous chaotic situations or wars. From my studying, it seems that it's hard to make sense of what would happen. It's more or less random what would ultimately be decided regarding investor's fates.

I was just querying whether there really were investors in pre 1933 Germany who held onto their stocks to the 1950s and so saw a recovery. Ditto Japan say from 1937 (beginning of war with China, so the real beginning of the Pacific War of which Pearl Harbor was actually just initiating a new, larger phase).

It's kind of meaningless to talk about hold-and-recover, I suspect, for investors in those stock markets.

I admit I haven't checked as to what happened in actuality for shareholders of those companies.

China is an odd case-- I agree it's not a democracy, and it practices a form of capitalism that doesn't look like the textbooks. But there are markets there, and there is ownership of capital by private non-governmental entities. It is some new hybrid form that the 20th century didn't teach us about.

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Re: 'A History of the United States in 5 Crashes' book

Post by TD2626 » Mon Oct 30, 2017 11:34 pm

Valuethinker wrote:
Mon Oct 30, 2017 3:54 am
TD2626 wrote:
Sun Oct 29, 2017 11:56 pm

By contrast, I have never been convinced it is meaningful to talk about say 95% losses on the German or Japanese markets. If you were Jewish or other enemy of the Third Reich, or lived in what became East Germany, then you had 100% losses. Similarly starvation killed perhaps 1 million Japanese in 1945, the Tokyo Fire Raid killed more people than either Hiroshima or Nagasaki. And there was hyperinflation, regime collapse and eventually replacement of the currency under a new occupation regime. In such a scenario, were share certificates even honoured? I don't know.
Of course, what happened financially to investors is meaningless to the ghastly physical horrors and deaths suffered by millions in WWII. Worrying about stocks during that period in history is inappropriate. However, when I run projections or simulations that say "100% chance of success" I always ask myself if that's really reasonable. Surely there is a chance, albeit small, that something (nuclear war, pandemics, super volcanoes, government collapses, etc) occurs that completely disrupts the plan. I always remind myself that these model outputs are X% chance of success, assuming the markets are still open for business. Note that your "assuming late 20th century market capitalism and democracy survive as continuing forms" is probably a bit restrictive." Vanguard's Emerging Market Index fund has over 30% of its assets in China, which is neither capitalist nor democratic. Wars can occur, governments can collapse or change form, and disasters can happen - but if markets in their general form stay open, and continuity of ownership is maintained, and the war/pandemic/disaster isn't fatal to you or your family, then things will likely work out. A 90 or 95% loss is recoverable - but a 100% loss isn't. Thus, it can be instructive to see whether property rights were maintained in previous chaotic situations or wars. From my studying, it seems that it's hard to make sense of what would happen. It's more or less random what would ultimately be decided regarding investor's fates.

I was just querying whether there really were investors in pre 1933 Germany who held onto their stocks to the 1950s and so saw a recovery. Ditto Japan say from 1937 (beginning of war with China, so the real beginning of the Pacific War of which Pearl Harbor was actually just initiating a new, larger phase).

It's kind of meaningless to talk about hold-and-recover, I suspect, for investors in those stock markets.

I admit I haven't checked as to what happened in actuality for shareholders of those companies.

China is an odd case-- I agree it's not a democracy, and it practices a form of capitalism that doesn't look like the textbooks. But there are markets there, and there is ownership of capital by private non-governmental entities. It is some new hybrid form that the 20th century didn't teach us about.
Look at sources such as the Credit Suisse yearbook. They show data for WWII. Whether or not that data is correct or meaningful is debatable - for example, Germany's market was frozen during WWII, and thus stocks appeared to be at stable, relatively high values through 1945, 1946, 1947... untill 1948, when the markets reopened, and currency reform occurred, stocks dropped ~90%. See the Credit Suisse yearbook; also this: http://globalfinancialdata.com/gfdblog/?p=3142 article. Again, though, the 100+ year charts of Germany's market or Japan's market from 1900 to today are likely meaningless. There weren't index funds back then - people owned individual stocks; it wasn't easy to invest in broad markets. Also shares were traded with stock certificates. Did anyone stay the course from 1930 to 1950? Tragically, millions died, were killed, or starved - and many who survived ended up in communist East Germany for the rest of their lives. It is in my opinion irresponsible to even consider what happened in markets when there was such tragedy. By extension, it is very questionable why the yearbook (or Wikipedia in it's 1914+ Japan chart here:https://en.wikipedia.org/wiki/Nikkei_225) connect the line through WWII for both countries (with a drop).

There are probably exceptions that prove the rule. Probably someone during WWII held onto stocks in companies that didn't get completely destroyed in bombing raids. Trying to make judgments based off these limited cases is probably foolish, though.

Stay the course and hope to live in peaceful times.

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