|1929 revisited- (29.07.02)|
John Kenneth Galbraith, in an interview for the BBC, drew parallels between the current UK stock market and the Great Crash of 1929. Specifically he compared the interlocking shareholdings in investment trusts, supposed to be low-risk, with the bull market in investment trusts set up by finance houses in the US in the 1920's. It is clear that this hybrid of pyramid selling and over optimistic fund managers does not help the current stock market situation.
The main difference is that the current stock market difficulties, unlike 1929, are not a result of poor liquidity. There is ample money looking for stock investment, but a lack of confidence in major companies and poor expectations on corporate productivity require a lower level of stock prices generally. It is likely however that liquidity will return at a point in the near future. The low volume of transactions is at least in part responsible for the current volatility, which again may be resolved when liquidity returns to the market. This is of course unless you believe that corporate accounting scandals are likely to be a widespread emerging factor in major UK companies in the next six months.