The Great Bull Trap of 2020

This first appeared in The Startup

  • A quick review of the 1929 crash
  • 5 reasons why the next market selloff could be brutal
  • Historic stock market crashes and recovery times
  • Final thoughts

Why the market is rallying

Some experts still think all the bad news is baked in and we are in the first stage of a V-shaped recovery. This outcome is starting to look more and more unlikely as more economic news becomes available.

  1. Next came optimism from the enormous amounts of money injected into economies around the world through various salary replacement and corporate bailout schemes.
  2. Now I think we are seeing a combination of a short-squeeze (particularly in large-cap tech) and FOMO (Fear Of Missing Out).

1929 crash in red. Great Recession in blue.

2020 crash

A quick review of the 1929 crash

Of course, history echoes rather than repeats. The triggers that sparked the two market crashes are completely different. However, while doing research for this article, I was struck by the alarming economic similarities between 1929 and 2020 that I think significantly strengthen the case for a bull trap. So, I’ve included some of my background research notes to help give more context.

Are you 100% American? PROVE IT! Buy more shares and support the bear-market rally!-


During World War I, Liberty Bonds were introduced to the public and even celebrity-endorsed by Charlie Chaplin, to help fund the war effort. Many people bought the war bonds out of patriotic duty.

The Roaring 20’s

After the conclusion of WWI, there was a huge economic expansion and wealth building, referred to as the Roaring 20s. Over time, the public was introduced to stock investing and people started getting a taste for making easy money through publically traded stocks. By the end of the 1920s, there was a kind of general consensus that the stock market would continue to rise forever.

The Roaring 20’s — Getty Images

Getty Images —

Black Thursday

In early 1929, there were signs of economic trouble — steel production and automobile sales were steadily declining, while consumer debt continued to rise due to easy credit. However, markets ignored the warning signs and continued to rise until September of 1929.

5 reasons why we could soon see the buying opportunity of our lifetimes

The current market rally and underlying economic conditions share some remarkable similarities to the bull-trap rally of late 1929, early 1930.

2. Epic financial intervention

Much as the bankers did during the 1929 crash, the Federal Reserve has provided unprecedented financial support in an attempt to reassure and support markets. According to Axios, the Fed will ultimately lend up to $2.3 trillion in an attempt to shore up financial markets.

3. Epic unemployment numbers

4. Long-term reduction of consumer activity

Like during the 1930s, large numbers of unemployed over long periods of time will ultimately lead to significant long-term reductions of economic activity due to significant supply and demand destruction.

5. A vaccine looks increasingly, far away

Donald Trump wanted people back to work by Easter. Shinzo Abe apparently believed if he ignored the virus, he might be able to save the summer Olympics. It seems neither leader initially listened to the scientists.

60% in Japan feel government mishandled early stages of COVID-19 outbreak: poll | The Japan Times

Over 60 percent of people surveyed in Japan last month said the government was not handling the coronavirus outbreak…

Bill Gates thinks a vaccine won’t be available until the Fall of 2021.

Historic stock market crashes and recovery times

Major stock market declines typically take years to recover. Why will the 2020 stock market crash be any different?

Great Recession, left — 1929 with bull-trap circled in red, center — 1987 Black Monday and subsequent recovery, right

Final thoughts

It’s hard to ignore how many of the preconditions that helped set the table for the 1929 crash and subsequent bear market rally are present again in 2020;

  • too many exuberant investors
  • and too much faith in policymakers’ ability to solve the problem.
  • record debt levels that appear completely unsustainable in a suddenly stopped economy,
  • a currently incurable virus that makes re-starting the economy difficult at best,
  • and a general public who are not willing to sacrifice people for the sake of stock prices.