OLD1953 wrote:While I would not be surprised if this happened in November, I've been amazed at the ability of the modern system to kick the can down the road.
The Dow made its 1931 high on February 24, 1931 at 196.96, about half of the 1929 high. Credit Anstalt's bankruptcy was 76 days after the high. The same length of time after this year's May 2, 2011 high is July 17, 2011. That was about the time Europe kicked the can one more time and the stock market made one possible last gasp.
One interesting aspect of Credit Anstalt is that it didn't have a huge effect on our market immediately, but the subsequent selling was steady and relentless, with the Dow falling all year to a low around 73 in December.
The selling so far since the July 21 high has been similar. Steady selling but nothing earth shattering enough to get people excited.
I think there comes a time when kicking the can down the road is no longer even the immediate lesser of two evils. The US may be immediately better off cutting spending than getting a debt downgrade and facing other consequences associated with overspending.
If the above is true, we may see some version of the relentless 1931 downward adjustment rather than a short term panic adjustment. I'm still betting on both, as stocks may be a lot more overvalued than they were in February 1931. Still, from the February 1931 high to the July 1932 low, the Dow fell over 75% without having any memorable panic days.
However, if there was anything close to a panic, it occurred 4 months after Credit Anstalt. This would also put us to the mid November 2011 equivalent.
http://oi53.tinypic.com/2mi57wk.jpg

While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.