The latest jobless data out of the United States gave stock pundits few reasons to cheer.
'No matter how you slice it or dice it, the US economy remains fundamentally weak,' wrote Mr David Rosenberg, former chief economist of investment bank Merrill Lynch, after analysing the data released more than a week ago.
But it was his dour observation on what might unfold as the world's No. 1 economy grapples with its highest unemployment rates in more than two decades that caught my attention.
He had dug up some articles in The Wall Street Journal from August and September of 1930, just over a year into the Great Depression, which had reported that investors looking for places to put their money to work got into the stock market after a big 50 per cent run-up.
'We only know now with perfect hindsight what these pundits did not know back then - that there was another 80 per cent of downside left in the bear market,' Mr Rosenberg wrote.
As an avid history watcher myself, I find the similarities between 1930 and the present day intriguing.
We are just two days from the first anniversary of Lehman Brothers' demise on Sept 15 last year - a calamitous event that nearly brought down the global financial system as it unleashed the worst economic slowdown in decades, now nicknamed the Great Recession.
Yet, looking around us, we would scarcely believe a huge financial crisis had occurred. Since March, the local property market has boomed and stock prices have gained 82 per cent.
There is another compelling comparison. Like investors in 1930, the big question now is: Where next, after the big rally in the past six months?
On this, Mr Rosenberg pointed out, there are few signs that the real economy is on the road to recovery. Companies everywhere are still cutting jobs as they cope with the severe economic stress triggered by the credit crunch crisis.
More alarming is the growing number of permanently unemployed. Many are still looking for jobs without success more than six months after losing them. At last count, these newly jobless accounted for one-third of the unemployed in the US.
Mr Rosenberg's observation has a familiar ring. In Singapore, despite the air of prosperity around us, doesn't everyone also seem to know of somebody who is still looking for a job after being laid off last year?
If ever there was a similar earlier period that bearish investors can cite as a reason for sticking to their unpopular view that the stock market is headed for another crash, the 1930 bear rally would be it.
But bullish investors will argue that Mr Rosenberg's gloomy views might have been coloured by Merrill's own trauma last year, as it fled into the bosom of Bank of America soon after Lehman's collapse.
They have history on their side too. Take the great financial panic, also in the US, in 1907. Once confidence in banks had been restored, there was a near total recovery in the stock market as well.
From January 1906 till the worst of that banking crisis on November 1907, the Dow Jones Industrial Average fell 49 per cent. It then clawed back nearly all its losses in the next two years - half of it within the first nine months.
Certainly, there was a huge financial panic last year, as Lehman's collapse spread the stench of contagion worldwide. Banks everywhere were seized by fears that their borrowers might fail, hence placing them in great peril.
All that is behind us now. The banking system has stabilised and interest rates have fallen to almost zero as central banks doused the financial firestorm by flooding the markets with massive amounts of cash to restore confidence.
This should ideally pave the way for the market to party like it is 2007 once more, when global stock markets hit record highs.
There is another recent period that market watchers can point to as a precursor of how financial markets will pan out in the coming months: the aftermath of the Asian financial crisis a decade ago.
Between July 1997 and September 1998, the benchmark Straits Times Index (STI) fell by 58 per cent, rocked by the financial turmoil that engulfed the region, as currencies such as the Indonesian rupiah and the Thai baht plummeted.
Then, in an almost miraculous V-shaped turnaround, the STI climbed a staggering 224 per cent in the next 15 months - with half of the gains coming in the first five months.
In hindsight, these gains were due to the flood of liquidity poured into the global financial system by then US Federal Reserve chairman Alan Greenspan and other central bankers to combat any computer glitches that might be triggered by the so-called Y2k bug as we entered the new millennium.
But it brewed a dot.com bubble that sent global stock markets crashing when it burst a few months later.
After hitting a then record high of 2,608 on Jan 3, 2000, the STI plunged by 53 per cent over the next 19 months.
It took six years before it regained sufficient strength to re-test the 2,608 level in September 2006.
By sheer coincidence, the STI has also been dancing around the 2,600 level for almost two months now, after the sharp run-up since March.
So, will it be January 2000 or September 2006 once again? Savvy investors like investment guru Warren Buffett have expressed concerns over the trillions of dollars printed by central banks in the past year to combat the financial crisis.
Regarding the monetary medicine so far administered by this 'greenback emissions', Mr Buffett warned that the threat it poses might turn out to be as ominous as the financial crisis itself.
What should investors do?
Legendary 18th-century investor Baron Rothschild once said: 'The time to buy is when there is blood on the street.'
February this year turned out to be an excellent time to pick up badly battered blue chips in Singapore, as the rising tides of protectionism, coupled with anger over ill-fated financial products like Lehman Minibonds, triggered widespread revulsion at holding any form of financial assets.
While February's gloom is unlikely to return, many stock pundits believe it is still not blue skies yet for the stock market.
Shanghai's bourse, which had almost doubled in value since January, plunged 23 per cent last month - a foretaste of jitters suddenly emerging when a market runs up too quickly in too short a span of time.
Source: Sunday Times, 13 Sep 2009
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