Join me for a few moments as we hover unseen over days of markets past and present.
Our journey will show us faces of elation and despair. Our purpose is to know the market's true story. Our goal is to be prepared for the days of markets future.
First stop: Wall Street on October 29, 1929. We see the shocked faces of people who lost big. It's "Black Tuesday." The Dow Industrials fell 23 percent in one session.
When prices bottomed on July 8, 1932, the market had lost 90 percent of its value (86 percent from the 1930 countertrend high). We see bread lines; hopeless expressions; and shantytowns.
What can we learn? When exuberance is so extreme that shoe-shine boys give customers stock tips, it's time to get out. Here's what the famous speculator Bernard Baruch recalled:
"Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day's financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929."
Another stop takes us to the more recent past. Once again, market optimism is extreme -- this time over technology stocks. And like 1929, the trend shifts from overdrive to an abrupt reversal:
As the dot-com bubble ends, we see day traders walk out of their offices for the last time. We see 401k participants afraid to open their account statements. It's another lesson about how market manias end. But, unlike the aftermath of 1929, this round of exuberance is subdued for a relatively short time.
By 2007, optimism sends the Dow to an all-time high. But less than a year later we see the worried faces of high government officials who say the entire global financial system is in peril. Fear causes the S&P 500 to lose more than half its value.
Did investors finally learn the lesson of what follows excessive optimism? No. Even after that severe crisis of 2007-2009, the chart below shows yet another round of renewed optimism of fund managers:
And when did fund managers have that "record commitment to stocks"? Answer: just a few months before the early May 2011 high.
Since then, volatility has increased. Yet even as we visit "markets present," we still hear market professionals recommending stocks. This speaks to the depth and breadth of extreme optimism.
Now it's time to visit the days of markets future. Here we must part, but in just moments, highly-experienced guides can show you what they see ahead.