‘A friend calls it the everything bubble’: Why do so many economists fear a 1929-style crash?

admin-cdn21 October، 2025

0 0 6 minutes read

By Quentin Fottrell

We have faced fears, for more than 10 years, that the market is going to experience the kind of crash not seen in nearly a century

If we speak about 1929 perhaps we believe we will avoid a similar fate befalling us. To revisit these moments gives us the illusion of control.

As reflected in the stock market’s three-year bull run, Americans appear to be broadly optimistic, even as polls suggest otherwise.

This has gone some way in fueling the postwar economic boom and – notwithstanding the occasional recession, financial crisis and market corrections (by the dozen) along the way – the market has, for the most part, proven a trustworthy long-term bet for investors and retirees. Even a global pandemic, during which more than 1 million Americans died, proved to be a mere blip for stocks. And yet the warnings keep coming about the specter of 1929, a time before the Securities and Exchange Commission and Federal Deposit Insurance Corp. existed.

Speaking to MarketWatch earlier this month, veteran Wall Street analyst Jon Wolfenbarger said that U.S. stocks could be on the verge of the biggest bear market since – you guessed it – the Great Depression. He cited extremely bullish market sentiment, economic weakness, spiraling debt levels and limited policy tools, which are unlikely to be helped by the uncertain global economic backdrop and the array of tariffs introduced by President Donald Trump amid a redrawing of the postwar political allegiances between the U.S. and Western Europe.

“I started looking at history and, you know, it took 25 years for the market to get back to the 1929 peak, and I don’t have 25 years,” Wolfenbarger, who is in his early 50s, told my colleague Barbara Kollmeyer. “Any given investment can go down 50% to 90%, and it can stay down for decades, at least 10 to 20 years.” He’s not wrong, but few people live their lives and follow an investment strategy with a worst-case scenario front and center.

Former International Monetary Fund chief economist Gita Gopinath has said that a U.S. crash could wipe out $35 trillion in global wealth.

Fundamental ratios

Where one analyst sees a legitimate AI-fueled rally, another sees familiar folly. Wolfenbarger, incidentally, is not wrong about the recovery period, but it’s more complicated than his 25-year observation suggests. After the 1929 market crash, when the stock market eventually lost approximately 90% of its value, the Dow Jones Industrial Average DJIA did take more than a quarter of a century (until Nov. 23, 1954) before it closed above the level at which it had peaked before its fateful October 1929 day. Others have calculated that it actually took five to 10 years, accounting for deflation and reinvested dividends.

A more puzzling Cassandra, financial journalist and author Andrew Ross Sorkin, offered an absolutely uncertain warning to investors during a recent interview on CBS’s “60 Minutes.” Sorkin said “we will have a crash – I just can’t tell you when, and I can’t tell you how deep.” He cited signs of a bubble, greed and the rolling back of financial regulations as then-and-now touchstones. (He is also promoting a book titled “1929,” so he has reason to be drawing parallels.)

IMF chief Kristalina Georgieva has warned about the destabilizing influence of AI.

The laws of physics create a nervous energy: The higher you rise, the further you fall. It seems imprudent, even impolite, not to advise caution.

In the postmortem, there will always be someone like economist Roger Babson in September 1929 who will be able to say, “I told you so.” Others, like the Yale economist Irving Fisher, infamously said precrash prices had reached “a permanently high plateau,” according to an Oct. 16, 1929, report in the New York Times. Naturally, economists in 2025 would rather belong to the “Babson bailiwick” than the “Fisher fold.” But is this rally really reminiscent of 1928? In one way, for sure: The laws of physics create a nervous energy; the higher you rise, the further you fall.

It seems imprudent, even impolite, not to advise caution, rather than mindlessly becoming part of the herd. With that in mind, it seemed apt to check in with Timothy Crack, an economist living in New Zealand, a country with more sheep than people. He describes the market as “another bullet point in the centuries-long list of paroxysmal bubbles in asset prices. ??We all know that humans have an awful history of chasing stock prices so optimistically that they push them past sensible levels, given fundamentals like earnings and dividends. By historical standards, the S&P 500 SPX has been out of line with historical fundamental ratios for a long time,” Crack told MarketWatch.

Heretical doomsaying

“We have slowly gotten to the point where housing prices, gold prices, bitcoin (BTCUSD) prices, S&P 500 levels and even grocery prices seem to have been inflated to levels that are continually grabbing the headlines,” Crack said. “My secretary and one colleague both asked me yesterday if they should buy physical gold; it will be my hairdresser next. Retail investors have wide access to online trading, commissions have fallen, ETFs keep popping up that allow you to take positions in assets that were previously difficult to access. A friend calls it the ‘everything bubble.’ ”

As bearish calls go, this one seems unequivocally pessimistic. (I, for one, hope that hairdressers everywhere continue to familiarize themselves with the risks and rewards of various asset classes.) But as we approach the centenary of the 1929 crash and the Great Depression that incinerated fortunes, brought America to its knees and upended the seemingly infallible belief in endless stock-market returns, the drumbeat of another 1929-style catastrophe has become almost heretical. These commentators are among several likeminded Cassandras who have expressed their concerns.

An apparent similarity between two unrelated events, a parchment-paper test, makes us partial to seemingly endless, overconfident prophesies of disaster.

It can be exciting, if macabre, to employ near-mystical theories that add intrigue to the sometimes laborious process of analyzing the S&P 500, Dow Jones Industrial Average and Nasdaq Composite COMP. This “scary chart” from over a decade ago was the digital equivalent of using parchment paper to trace the 1928 trajectory of the Dow over what has proven to be a perfectly innocent 2014 chart. Technical analyst Tom DeMark said at the time: “Originally, I drew it for entertainment purposes only … [but] now it’s evolved into something more serious.” Better to line your baking tray with that chart at Thanksgiving.

We are obsessed with fabled moments in history when wealthy people met their Waterloo (or paraded the decks of the Titanic oblivious to the icy depths that awaited). If we speak about 1929 perhaps we believe we will avoid a similar fate befalling us. To revisit these moments gives us the illusion of control and, in principle, separates us from the herd. Attempting to engage and draw parallels with traumatic events, even those that predate our time on this planet, may help us heal from other recent fissures in our financial and emotional lives: 9/11, the 2008 financial crash, the pandemic.

Loss-aversion theory

A revolutionary, consumer-facing technology like artificial intelligence and the shifting of geopolitical plates may not by themselves be enough to cause a 1929-style crash. The tech sector, which makes up more than a third of the S&P 500, is profitable, and analysts who advised caution during the early days of the “Magnificent Seven” joint hegemony of Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – and now you might add Palantir (PLTR) – have been proven wrong, for now. In the meantime, experts generally agree that a banking crisis, the floor falling out of the jobs market and a real-estate bubble are bedfellows for a hard landing.

George Soros warned of an “internet bubble” in 1999, before the 2000 tech bust, and a “superbubble” in July 2008, two months before Lehman Bros. collapsed. (He has described AI as a “mortal danger” to open societies but has not made any public pronouncements on the current market.) We are all Cassandras. The Moneyist, yours truly, has drawn comparisons between the labor market of today and that of the 1990s: a decline in white-collar jobs, falling consumer confidence, rising unemployment and a tightening of temporary workers. Again, it sounds convincing, on parchment paper.

Yes, we are all Cassandras. Daniel Kahneman, the Nobel laureate who died last year, and his late colleague, cognitive mathematical psychologist Amos Tversky, noted in their work on “prospect theory” that when taking risks, especially with investing, humans are more compelled to avoid loss than to realize gains. Hence, our focus on potential disasters. In another joint paper on “the illusion of validity,” that legendary duo posited that an apparent similarity between two unrelated events, a parchment-paper test, makes us partial to seemingly endless, overconfident prophesies of disaster.

They persist because, as Soros can attest, once in a while they are proven right.

It can be exciting, if macabre, to employ near-mystical theories that add intrigue to the sometimes laborious process of analyzing the S&P 500.