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richardfoster

House Price Crash - Stock Markets?

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It does appear that the markets are taking a turn for the worst. I am considering what to spend my deposit on I saved from not buying a place.

My question is what will happen to the stock markets? What has happened historically during a crash, do they go down or do people push money into them because of a loss of confidence in property.

I am sure I read the investing in firms that specialise in repossessions is a good idea.

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It does appear that the markets are taking a turn for the worst.  I am considering what to spend my deposit on I saved from not buying a place.

My question is what will happen to the stock markets?  What has happened historically during a crash, do they go down or do people push money into them because of a loss of confidence in property.

I am sure I read the investing in firms that specialise in repossessions is a good idea.

copied from a different thread

http://www.housepricecrash.co.uk/forum/ind...showtopic=14603

What Happened to Gold Stocks in the Great Crash Era (1929 - 1935)?

In October 1929 equities had reached unprecedently high levels of valuation. Although there were several causes of the 1929 crash, much of the blame may be attributed to the abuses of the infamous investment trusts - which enjoyed wildly accelerated growth from 1924 to 1929.

It is interesting to recall that the investment trusts of the 20s were the forerunners of what we refer to today as mutual funds. It was primarily through the channeling of the public's savings via the investment trusts that drove stock valuation ratios to astronomical - indeed unrealistic - levels in late 1929. Unfortunately, there was no securities' law nor S.E.C. at that time to curtail market abuses, manipulations and/or excesses leading to the bear market debacle which followed. Nor was there a Fed Chairman cautioning that "IRRATIONAL EXUBERANCE MAY RESULT IN A FINANCIAL ASSET BUBBLE!"

Financial assets as reflected by the Dow Jones Industrial Average (DJIA) reached its peak value of 385 in October 1929, marking the beginning of our country's worst bear market. And although the DJIA finally bottomed at 41 in June 1932, the vast majority of stock investors continued to suffer the effects of the languishing bear market during the next three years. By December 1935 the stock market (DJIA) had only recovered to 140 from its 1932 bottom -- still down a whopping 64% from its October 1929 peak.

As might be expected, interest rate sensitive equities were also decimated during the Great Crash of 1929. In September 1929 the Dow Jones Utility Average (DJUA) hit its peak at 145. From late 1929 the DJUA tumbled to its abysmal l o w of only 15 in March 1932 and again in March 1935. The interest rate sensitive utilities had plunged a cardiac arresting 90% from their unrealistic and lofty 1929 highs.

Three years after hitting its nadir, the DJUA was still severely depressed. Imagine: A $10,000 investment in the relatively "safe" utilities in late 1929 was only worth a mere $2,100 on New Year's Eve 1936! This is heart-wrenching financial history...

What Did Smart Money Do In the 1929 Crash and Aftermath?

During the same bear market period smart-money moved from the plunging equity markets (i.e. financial assets) to hard asset investments, like Homestake Mining - which is used heretofore as a surrogate for all gold stocks.

The stock price of this gold mining company soared relentlessly upward during the entire bear market. Homestake Mining stock rose continuously from $80 in October 1929 to $495 per share in December 1935 - which represents a total return of 519% (excluding cash dividends) during the devastating bear market period.

Contemplate and appreciate the monumental difference in investment returns during a serious bear market. Smart-money invested $10,000 in Homestake Mining (hard assets) in late 1929 - which increased in value to almost $62,000 by December 1935. This represents a compound rate of return of 35% per year in appreciation alone!

It is meaningful to note that in late 1929 the value of Homestake Mining was about $80 per share. Moreover, during the next six years Homestake Mining paid out a total of $128 in cash dividends. In fact the 1935 dividend alone reached $56 per share. That's almost a 70% dividend yield payout (basis 1929) in only one year! Indeed, hard asset investments (gold mining shares) were islands of economic refuge during the grueling years of the Great Depression.

Unfortunately, those innocent souls who remained invested in stocks - and had a buy and hold strategy - saw their initial $10,000 investment slowly dwindle to only $3,600 by late 1935. This represented a devastating capital loss of almost two-thirds of their investment savings. T H A T'S R I G H T! The hapless naive investor with a buy and hold strategy in financial assets lost the greater part of his original stake. Pathetically, he could ill-afford to risk - let alone lose - his precious capital during the many long despairing years of the Great Depression.

What Happened During the Next Great Market Crash (1973/1974)?

From the market high in 1973 to its low in 1974 the DJIA and the S&P 500 lost almost half their value - while the previously high-flying technology stocks plummeted more than 60%. Enough to cause heart-failure to the credulous believers of THIS TIME IT'S DIFFERENT. Even the relatively "safe" utilities were decimated - as they dropped more than 50% from their 1973 high to their nadir in 1974. H-O-W-E-V-E-R, students of financial history took profitable refuge in gold metal stocks. The Gold Mining Index, composed of ASA, Campbell Red Lake and Dome Mining, appreciated more than 260% from its 1973 low (40) to its 1974 high (147). This merits being redundant. During the severe 1973/74 bear market, stocks lost half their value - while gold mining companies almost quadrupled.

This post has been edited by cgnao: Today, 01:20 AM

--------------------

The prudent see danger and take refuge.

The simple keep going and suffer for it.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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