How low can it go?
NEW YORK (AP) — Investors’ despair about financial companies and the recession have brought the Dow Jones industrial average to another unwanted milestone: its first drop below 7,000 in more than 11 years. […]
“As bad as things are, they can still get worse, and get a lot worse,” said Bill Strazzullo, chief market strategist for Bell Curve Trading. Strazzullo said he believes there’s a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.
For those who say “Who cares?”, let me just say anyone still employed and hoping to stay that way, anyone recently unemployed and looking for work, people with 401K plans, IRAs, etc., retired people on fixed incomes who hold savings in Mutual Funds, state governments whose tax revenues are dropping like a lead weight in water, and so on and so forth. Much as we like to think the market impacts only Wall Street and a bunch of con men brokers, that just isn’t true. I said a while back the DOW would fall to 6000. Right now it looks like I’ll be right, just a lot sooner than I expected.
sad as it may be, you and strazzullo are being optimistic. even ‘dr.doom’, is scared: Economy Much Worse Than Roubini Predicted:
and he’s not alone. look at this analysis and consider the ramifications if the scenario that can be drawn from the methodology comes to pass…
How Low Can The Market Go?:
worse case scenario -5X: s&p @ 300 ~ dow @ 3000 ±?
it’s getting real ugly out there.
Not that I disagree, but any such predictions tend to gloss over things like the differing composition of the indices over time, etc. But this is definitely around the right range of expectations to set.
The real problem is, no matter how rational the explanation of the ‘bottom’ is, we’ll likely be taken below it by pure ‘market psychology’.
In otherwords, it’s not time to buy when the market gets DOWN TO 5x. It’s time when it gets BACK UP to 5x after going into the shitter for nothing but fear’s influence.
‘market psychology’, even by bubbles greenspan’s definition, is irrational. ergo, one can come up with all kinds of analysis, based on whatever indices and criteria one chooses, and still be wildly off the mark. it’s voodoo economics writ large. the people who invented all this stuff, and who were, by and large, supportive of the deregulation and ‘deficits don’t matter’ bs, etc. based on ideological beliefs haven’t got a clue. unfortunately, they’re still calling the shots.
the one area where the ‘market’ is a reasonably accurate indicator/predictor is as a general consensus [of the investor class… granted] regarding confidence, or lack thereof, in the overall condition of the economy, and hence, a good barometer of things to come.
imo, it’s going to get much worse before it gets any better.
Anyway you look at it, losing a few decades of economic growth in just a few months is gonna be one hell of a ride. There’s a lot of nervousness stateside, but I can’t even imagine how many (formerly) developing regions that were desperately ‘globalizing’ are going to fall into a darkness they’ve not seen… perhaps ever.
Sad thing is, here we are, all talking about it, but I don’t get the sense that a lot of folks are doing much more to protect their futures than stashing a few dollars here or there when they can.
I would encourage people to consider taking at least one trade or skill that they have always payed another to perform and learn it themselves. Hey, if nothing serious goes down, at least you’ll be able to do cool stuff. At minimum, plant a ‘victory garden’ or encourage community gardens for the same purpose.
Don’t wait for the Econocalypse to knock your door down and perhaps it won’t.
The DOW ‘should’ be at @5900 right now:
That’s the current valuation minus what remains of the ‘fiat economy’, assuming the real asset-backed economy has grown at a consistent rate in the post-WW II era.
Basically that means all fiat value added since 1971 (the year Nixon floats our currency-THANKS) would be lost. The only reason that we shouldn’t fall to 1971 levels is that the ‘real economy’ has been slowly growing too, but masked by the bubble-burst cycles of the fiat currency economy.
To me that sounds about right: when the common delusion of value is destroyed, all value created by that delusion is lost. In today’s case, I’d say the uber-bubble is fiat-currency itself and we’re at the end of a 40 year cycle that is ultimately returning us to where we started.
It doesn’t mean we can’t create another delusional, unfettered bubble and I am sure we will, against all reason.
My ‘best case’ prediction is that the DOW goes well below 5900, but the overshoot becomes undeniable and we swing back up to 5900, signaling the beginning of the recovery.
The problem with ‘should be’ at this level or that is market volatility has destroyed everyone’s predictive models, they are scared and may simply let capitalism fail rather than be the one who responds to reason and reinvests in broader market equities first.
That’s all very scary, but I’d like to remind folks that in 1971 an American was also driving around on the frikkin’ moon and perhaps most encouraging of all, I was conceived.
I said a while back the DOW would fall to 6000.
I recall that you did and thought at the time you were optimistic. But what will happen to the dollar. It is still floating at reasonable value because it is still considered a reserve currency. But I am of the opinion that there is no substance; only perception holds it up. For how long?
The dollar has been up and down and now is back up from its earlier lows but its all relative to other currencies, which just means no one knows where the safe havens are anymore. Even gold dropped today which seems counter intuitive, but that’s how spooked people are about where to put their money.
Gold is also being sold simply to pay debt, providing much of the downward pressure that has been hitting metals generally.
Gold should be considered cheap right now, despite historically high prices, but should likely fall further as deflation has no friends. At the first sign of the hyper inflation that a ‘recovery’ almost MUST bring, metals are going to apeshit and become VERY expensive. Good luck timing that, though.
I would actually encourage silver as an investment – grain of salt, please – but the supply of available silver is supposedly thinnest of ‘precious’ metals, predictive of the largest % gain when metals prices rise again. Best of all, and unlike gold, it is consumed and unrecoverable in most of it’s industrial applications.
Unfortunately for me, no matter how I rub my two cents together, my silver-baron future comes no closer. (Copper perhaps?)
I think the dow will tank too, but near 6300 points. What bugs the S@@t out of me is how did a barrel of oil got to a $149.00 dollars a barrel in July 2008, in the middle of a recession–unless traders were stealing & speculating.
I believe that $4.00 dollar a gallon gasoline is responsible for a portion of that 6.2 contraction. Honetsly, I think Obama should take a note from Chavez and send the military to the gas refiners to make sure their running at 100% percent, let the price of gas drop like a rock like the rest of the market. Instead refiners are reducing capacity to 80% percent to prop up the price of gas.
Barrel of oil $149 = gallon of gas $4.00
Barrel of oil 40 = gallon of gas 1.72
Shouldn’t gas be much cheaper like 1.02 a gallon?
No American politician has said it, but after the minimal response to the California Energy ‘crisis’ and the whole Oil spike thing, it’s obviously been ‘deemed’ ‘acceptable’ to manipulate prices through refinery games like simultaneous ‘repair’ refinery take-downs.
I left CA because of those refinery games (CA was about to pay for building more refineries as a reward to the guys who shut them down on purpose and I knew that meant collusion from top-to-bottom, both parties). Then it followed me all across the country!
Hey California, next time you think you have a centrist, eco-friendly wonder governor (either party), remind yourself who is really running the show. At the end of the day, I think you would have done muuuch better with Gary Coleman.
At least he wasn’t Kenny Lay’s errand boy.
No hope for recovery in the markets will happen until the housing depression ends.
And frankly, I don’t have any real hope that it will end anytime soon. Housing prices still have a good 20-25% left to fall, and while they do that, median income will continue to fall as well, readjusting the level to where housing prices should fall to.
We’re pretty much in a death spiral right now, and I’m not seeing anything Obama doing at this point will be enough to pull us out of the dive.
My worst case scenario? Detroit’s current real estate market spreads to most of the nation. Houses for a fraction of what they are worth now, houses being bought and sold for less than the price of a new car right now.
So yeah, really dismal numbers, 1929 style numbers where the Dow plummets to 3k or less are not out of the picture.