by Jack Lee
We’ve broken through yet another psychological barrior of 7000 on the DOW today. The market has moved with some conviction into the 6800’s as I write. Unfortunately, nothing in news even hints that this dive will be slowing down anytime soon, much to the consternation of investors who have watched with surprise and dismay as their professionally managed portfolios lose 40, 50, 60% or more of their overall value!
Imagine, if you had invested in a DOW (1) index fund 12 years ago you would be right back to even today. On the S&P index, which many feel is more accurate indicator of market health, you would have to venture back to 1996 to match today’s low of 708, which represents more than a 50% drop from just 2007. This is dangerous momentum folks and everyone is asking, how low can it go?
Well, our worst case scenarios keep playing out in the news and that’s not good! The president tell us the worst is yet to come and I believe him! The Wall Street Journal recently did an article that said the market is so complex and fraught with unknowns that nobody can make an accurate prediction. I’ve heard 5000 on the DOW could be the bottom, but I think this is just pure speculation…we simply don’t have enough hard data to make that call yet. Intuitively I tend to agree with the 5000 mark, but I can’t support it with credible evidence.
When the market plunges as deep as it has in just the last 6 months there is a momentum that takes over and the scope of problem grows exponentially, much like a snowball rolling down a high mountain top…and believe me when I say when the market peaked, we were on a very high mountain top. Now we’ve got one monster sized snowball running at the speed of gravity and the feds are trying to stop it with every tool in their arsenal. Todate, nothing has worked. Banks are still failing, home prices are still falling and dramatic unemployment is on the rise.
One thing that has caught my attention is consumer debt in relationship to our gross domestic product. We have a 13 trillion dollar consumer debt and a 13 trillion dollar gross domestic product, a 100% comparitive relationship. Normally our debt runs around 30-50% to the gross domestic product. Now get this, the last time it was at 100% was 1929.
In other areas oil plunged 10% today reflecting the retreat in consumer spending and rekindled economic worries. This is their biggest one-session loss in nearly two months. Around the world there is a flight to buy greenbacks which has the dollar strengthening. AIG was one of the few bright spots in the market, thanks to generous government bailout money and loan restructuring which will save AIG a billion a year. AIG just posted a record loss for any corporation of $62 billion. GM has hit $2 a share and one wonders how far off is bankruptcy? Ford is trading at $1.86, but has better cash position.
Hang on folks, it’s going to be a rough ride.
(1) DJIA aka DOW, contains 30 of the largest and most influential companies in the U.S. It is the most recognized index in the world, and the one that is frequently referred to as “the market”. Despite its popularity, however, the DJIA has some weaknesses as a benchmark for the overall market.