Tuesday, March 03, 2009
How low the Dow?
As various readers point out, the Dow Jones Industrial Average has blown below my longstanding dartboard prediction that it would bottom at 6800 in March. If this were the Pinewood Derby, I would get a recognition award for picking the month the DJIA broke below 6800. The trophy, though, will go for picking the bottom.
This post from Megan McArdle suggests that it could fall by another 2000 points. My only observation is that the last time the market traded at 5-6X earnings we had double digit inflation and even higher interest rates. You sort of had to earn 20% on your equity to make it worthwhile. With no price inflation and interest rates measured in basis points rather than points, all a stock investor needs now is good odds that shares will not go much lower. Sadly, that has been hard to come by.
There is, though, a bit of bullish news:
HOW LOW can the market go? We’ll see a few bear-market rallies, but I certainly have no reason to think it’s hit bottom. Of course, market bottoms are mostly visible in retrospect, but I’m not seeing many people who think it’s time to put money in. And, given current economic policies, I don’t know why anyone would.
If that were on the cover of Barron's it would be just the capitulation we need to launch the next bull market!
More despair here. Keep it coming! The bear won't die until almost everything is thinking this way.
15 Comments:
By 
, at
Tue Mar 03, 09:10:00 AM:
As TH implies in his last line, the time to turn bullish is when everybody and their dog has turned bearish. Another market truth is that low prices are the cure for low prices. But can our economy come roaring back in the face of a 1.7 trillion dollar tax hike, a possible cap and trade scheme, massive government deficits and a global economic collapse? I am looking for glimmers of light but just don't see any. Maybe I should raise the blinds?
By , at
Tue Mar 03, 11:08:00 AM:
There's unprecedented political risk in America, the Treasury is plugging holes all over the place, Washington is creating confusion in the financial markets and the rest of the economy is flat in the best segments, down precipitously in the worst. With that scenario as backdrop, it's easy to understand why the market has declined so much since the election.
The market is a predictive mechanism, and is seems to be predicting bigger problems ahead for the country. Any new drop going forward, especially on the scale McArdle is thinking about, is going to be a reflection of new problems, yet unseen. I think that means a Biden-esque international challenge of some sort at our weakest point, the new administration.
By 
Viking Kaj, at
Tue Mar 03, 11:12:00 AM:
This is the worst funk since 1929 and most professionals keep saying they have never seen anything like this in their lifetime. I have been waiting to make a prediction until I saw how the new adminstration would handle things. I think it is safe to say that they are going to be unwilling to make difficult decisions unless they absolutely have to. They will continue with a piece meal approach that rewards cronies and puts patches on things rather than fixing fundamentals. I don't see their programs leading to a quick fix, in point of fact keeping things screwed up may work in their electoral favor.
So here goes.
The bear market goes 36 months from October of 2007, so we will bottom in October of 2010. The amount of money being spent will have some impact so we will not go as low as in 1932, which was 89 %. So I'm going to guess down 70% or 4200.
So 4200 in October of 2010.
I hope I'm wrong, but there is just no good news anywhere.
I also expect markets in China, Malaysia and India to recover before we do.
And when we do start to pull out of this thing inflation is going to be horrendous, especially if we don't have an energy policy that works.
By Viking Kaj, at
Tue Mar 03, 11:28:00 AM:
I've reconsidered given my time frame and I don't think I went low enough. So I'm going to guess down 74% or 3640.
3640 in October 2010.
By Viking Kaj, at
Tue Mar 03, 11:32:00 AM:
Question, what effect would a major terrorist strike in the US have on the present market?
We are probably overdue and after Mumbai and Lahore I don't think they are giving up.
By , at
Tue Mar 03, 02:18:00 PM:
The markets have exposed both the limits of our economic resources and our leadership vacuum, and so a terror strike would only make those facts more compelling. I'd guess the effect of a terror attack would be to cause a major drop in confidence in our strength, even consternation, across the world. The President urgently needs to reassess his administration's priorities, and focus on establishing economic stability, first and foremost.
By Viking Kaj, at
Tue Mar 03, 04:19:00 PM:
I've changed my mind about Lahore. I think this is an attempt to destabilize the government in Pakistan.
http://news.bbc.co.uk/2/hi/south_asia/7921291.stm
I also don't think the Mumbai attacks were a friendly flag operation.
Still, I think the Pakistani intelligence services are the biggest terrorist threat going right now. Maybe they are trying to stir things up so aid keeps flowing their way. Certainly the mess in Afghanistan would not continue without their secret support.
And they probably won't be too upset if their government does fall.
By , at
Tue Mar 03, 04:28:00 PM:
Obama just likened the stock market to a tracking poll … and said he doesn’t look to its day-to-day gyrations, which he thinks would be bad for formulating policy.
So here’s a pop quiz:
Is Obama
A) just a sh*thead who doesn’t know any better, or
B) purposefully creating chaos to bring the world crashing down.
There is no “C.”
Link
By , at
Tue Mar 03, 04:56:00 PM:
Re Link: I believe there was a point in the campaign where someone pointed out to 0bumble that raising cap gains tax rates would result in less tax revenue. Obama replied that tax revenue wasn't as important as 'fairness'. Based on that anecdote I would say there is malice in his heart and that he wants capitalism to crash. Contrast that with treasury/fed where all one can see is ineptitude or indecisiveness and one has the feeling that we have the worst of both worlds.
By , at
Tue Mar 03, 04:59:00 PM:
You keep making this same point, that he's purposely creating chaos to further his socialist agenda. That is obviously true, so point acknowledged, but he is still a shithead who doesn't know any better.
He thinks the humpty-dumpty economy can easily be put back together, though it'll look much different when he's done reinterpreting the Constitution and restating the American dream (ie, more equal income distribution). What he does not understand is that his endgame won't all look like Chicago, a vibrant urban success, and instead it'll look much more like East St. Louis or Gary, Indiana.
He's absolutely clueless, an empty suit, even while being an intelligent and dedicated socialist.
By , at
Tue Mar 03, 05:10:00 PM:
I've been ranting for months that Obama has a radical agenda and that he's personally corrupt ... he's no Robin Hood. I'll stop now.
But what do we do now?
Enough Democrats in Congress have to wake up, or we're toast. We can't wait four years, or even two.
I'm thinking of organizing protests or even sit-ins aimed at local House members.
Anybody got other ideas?
Link
By , at
Tue Mar 03, 05:24:00 PM:
By the way, did anyone catch Cramer's "Mad Money" last night? I usually don't watch Cramer, because he's annoying and because I object to the pictures of Lenin and Mao that he has on-set, as background pieces, as well as objecting to his liberal political bias so constantly on display.
But last night was different. He launched into a serious plea to the Obama administration to face reality and understand that their "agenda" is destroying the middle class.
First, we have to recognize we have a problem, and Cramer has done that, though he thinks he still can agree with many of the "ideas" the Obamanation likes. Soon, though, he'll face up to the fact that the problem is rooted in the agenda itself, and he'll start agitating for tax cuts and a reduction in federal spending.
In doing so Cramer is a sort of a bellweather, and I believe other wealthy NYC Obama supporters will soon also turn against the Won. Farmers will too, once the reality of land and commodity disinflation really sinks in. Industrial workers will also, once they realize Obama could care less about their pension market values. Even academics might start to get it, once the fog in their heads begins to undertand the link between endowment valuations and salaries in academe.
The GOP may well be a dead letter political party, but there will be someone who will rise up and take advantage of this burgeoning dissatisfaction with the poverty inducing policies of the Obama administration. If it's a third party, it'll be a third party with a real chance of success.
By MTF, at
Tue Mar 03, 06:42:00 PM:
"I've been ranting for months that Obama has a radical agenda and that he's personally corrupt ... he's no Robin Hood. I'll stop now."
Don't stop! I didn't mean for you to stop! I was only trying to say that it's not an either/or choice between shithead or socialist. I think he's both-- a political agitator and a stupid, inexperienced twit who thinks he's "just spreading it around a little".
By the way, I finally registered an account so I'm not just another anonymous poster anymore. Progress.
By Who Struck John, at
Tue Mar 03, 09:45:00 PM:
I still see zero reasons to revise my prediction from your first call-the-bottom survey: November, 2011. Dow @ 2600, S&P-500 @ 275.
You all still keep thinkin' this is going to be a small panic. Think bigger.
By Bill C, at
Tue Mar 03, 10:22:00 PM:
TH,
I thnk it is pointless to pick a bottom based on price. We might know major support levels, 7200 was one BTW, but there is no telling how low we go when everyone begins to panic. There will be no bottom as long as the Obama administration has free reign and that won't be stemmed until the 2010 elections. Keep your powder dry until then.
