Summer 1929 – New York
In the ‘Roaring Twenties’ – a period of powerful economic growth and profound cultural change from 1920 to 1929 – the national wealth in the US doubled.
The Dow Jones rocketed, thereby creating many new millionaires and stock trading became America’s favorite pastime as investors could make a quick killing. Many invested their life savings or mortgaged their homes as the stock market was thought to be safe due to the country’s economic boom.
Bernard Baruch, a former Wall Street giant, described the state of the stock market in the summer of 1929 like that: “Taxi drivers told you what to buy. My cook had a brokerage account and followed the ticker closely. The shoeshine boy could give you a summary of the day’s financial news as he worked with polish.”
Summer 2015 – Shanghai
In the first decade of the 21st century, China experienced the fastest growth of any major economy in human history. Even in the years during the global financial crisis after 2008, China grew by 40% and became the world’s second largest economy.
The soaring stock market in Shanghai increased the number of Dollar-millionaires in China by 30%. Millions of chinese opened a brokerage account to buy – many via credit – stocks for the first time in their life. Among them, Sophie Wang, a 32-year-old art teacher from Nanjing. She bought her first shares in 2015 “on the advice of my hairdresser”.
October 1929 – New York
Joe Kennedy, the father of future US President John F. Kennedy, sold all his shares just in time, after a shoeshine boy gave him stock tips. “When the shoeshine boys have tips, the market is too popular for its own good”. And how right Kennedy was.
October 1929: ‘Black Thursday’ on Wall Steet/getty images
The Wall Street Crash of 1929 was the most devastating stock market crash in US-history and signaled the beginning of the 10-year Great Depression that affected all Western industrialized countries. It would take the Dow Jones 25 years to return to pre-crash levels.
Shanghai – Today
From it’s peak in the summer, the Shanghai Composite fell substantially in the second half of 2015 and even worst in the begining of 2016. Is the Shanghai stock market today at the same fatal stage as the New York stock exchange 87 years ago? Is the shoeshine boy of New York in 1929 the hairdresser of Shanghai in 2015?
Are the eerie similarities enough to be afraid of a ‘1929’ chinese-style?
And how much would a ‘China-Crash’ affect the global economy and threaten your job?
Find the answers in the next chapter http://www.theleader.ro/china-credibility/
How the Shanghai Composite in 2015 (yellow) follows the 1929-path of the Dow Jones (blue).