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Not since the late 1930s has the stock market technically been as low as it is now. After a week of rallying, the DJIA dropped 680 points, surrendering more than half its recent gains. The S&P 500 Index and NASDAQ responded in kind, with the broader index shedding nearly 8 percent in one day.

Not since the late 1930s has the stock market technically been as low as it is now. After a week of rallying, the DJIA dropped 680 points, surrendering more than half its recent gains. The S&P 500 Index and NASDAQ responded in kind, with the broader index shedding nearly 8 percent in one day.

The economic news is bad - manufacturing worldwide, unemployment data, newly announced pending layoffs from major financial institutions.

And worse yet, both Ben Bernanke and Hank Paulson spoke today, reinforcing investors' lack of confidence in the Bush administration's team of economic knuckleheads.

Wall Street remains slow to comprehend the depth of this recession. Hence, in addition to their employers' lack of desire to see stocks' earnings estimates reduced, let alone SELL recommendations shouted out, analysts simply lack the broader outlook to highlight the dangers that still remain.

If anyone expects that we will not see continued waves of tax selling before year-end, well the awakening may be very rude. We will no doubt see a retest of earlier lows. We are less than 600 DJIA points away. I've suggested even lower lows before this market reaches bottom, 7200 on the DJIA and 700 on the S&P500. Investors strongly dislike uncertainty and we have months of it ahead of us.

The good news is that the market will eventually truly reach a bottom. But it won't be a bottom based on wishful thinking or some respected investment strategist waving a magic wand. We will need evidence of a slowdown of the slowdown. And regardless of where you look, we are not close to having that vision.

clearthemist.blogspot.com

Originally posted to ClearTheMist on Mon Dec 01, 2008 at 01:52 PM PST.

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Comment Preferences

  •  Don't repeat the intro in the main body (4+ / 0-)

    Don't repeat the intro in the main body

    It's annoying.

  •  what do you mean technically lower?? nt (1+ / 0-)
    Recommended by:
    washunate
  •  that's quite a claim (1+ / 0-)
    Recommended by:
    tacet

    for the amount of accompanying analysis. In 70 years, the stock market has never been lower?

    Obviously in nominal terms, the DJIA, S&P 500, NASDAQ, and others have been lower, so I'll assume you mean inflation-adjusted.

    To work backwards with inflation and a rough multiple of prices doubling every 20 years, then we'd expect to see the Dow above 4,000 in the 1980s, above 2,000 in the 1960s, above 1,000 in the 1940s. The absence of such historical data points suggest that what we're encountering isn't an epic meltdown not seen since the 1930s so much as a regression to the mean by way of slowing real growth.

    Basically, equity markets are where they were at the beginning of the Bush Administration. Considering most of the Bush years were spent squandering our collective wealth, that's about right. It's unfortunate, but it doesn't mean stocks have fallen to 1930s era prices. There's still a lot of real growth in stock prices since the 1930s even if the DJIA drops under 8,000 this week.

    Or to say it differently, if you started investing a decade ago, you haven't made any money, which is a pretty accurate reflection of American productivity in general over the past decade; we've built bombs and prisons and other such things that don't increase productivity. But if you started investing four decades ago, your gains have been reduced, not eliminated, since the most recent highs last October.

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