Oct 9th, 2008 at 5:16 pm
Dow 0?
I believe that at the rate of decline we’ve been experiencing since Bush signed the rescue package into law, the Dow Jones Industrial Average will be at 0 before the end of 2008. Presumably at some point investors will feel they’re looking at bargain prices and start buying again. Right?
62 Responses to “Dow 0?”
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October 9th, 2008 at 5:17 pm
No.
October 9th, 2008 at 5:20 pm
Yes.
October 9th, 2008 at 5:21 pm
Given that cnn.com, msnbc.com and the rest can’t seem to run a story on tanking markets without an accompanying graphic of a white guy clutching his head in pain, I’d say the safest investment right now would be in large quantities of Tylenol.
Everybody gets their 401k reports this week. George Will called it a mailer Obama didn’t have to pay for.
October 9th, 2008 at 5:26 pm
In finance, rates are usually better measured in the log domain, so we won’t get Dow 0. Of that I’m confident.
October 9th, 2008 at 5:27 pm
I blame Jim Cramer.
October 9th, 2008 at 5:35 pm
The question is, how many people who make it through this mess are going to get wiped out in the false rallies of the next few years?
Mike
October 9th, 2008 at 5:36 pm
Obviously, we’re not going to 0. I pulled out of the market entirely about 6 months ago, sitting on cash since. If it get’s to 7500, I’m all back in.
October 9th, 2008 at 5:38 pm
I don’t buy stock for the present. I buy it for the future. The long-term trend in the market is roughly eight percent growth each year. Buy into an index fund now and get bargains.
October 9th, 2008 at 5:39 pm
Yeah…. I just got mine. It’s horrible.
I just started the damn thing, too. It’s like throwing my paycheck down a well.
October 9th, 2008 at 5:40 pm
We’re now a bit below we’re we’d be (Dow-wise, that is) if this bear equaled the historical average. My guess is therefore that the bottom is very near, but I could be wrong. I frankly hope I’m wrong, because President Obama’s congressional majorities are likely to be thinner if the Dow increases a thousand points over the next three weeks.
October 9th, 2008 at 5:43 pm
I’m holding my money until he moves the Bluth Company from “sell” to “don’t buy”.
October 9th, 2008 at 5:45 pm
No
Sometime around the end of the year, the realities of peak oil will hit.
at which point investors will realise that you can’t eat stocks and even if you burn them, they don’t heat your house for long.
at which point, the entire financial system will flounder
we’re in for interesting times and if McCain succeeds in lying his way into the White House (which he seems determined to do – he’s now telling outright lies in his stump speech – see this link: http://www.americablog.com/2008/10/its-not-just-attacks-its-utter-bull.html)
then the entire world is sunk
good thing he’s losing
do you suppose the MSM will stop recycling his myths and start talking about what people want to hear sometime soon?
October 9th, 2008 at 5:46 pm
I just mailed in our SEP plan contributions for the 2007 tax year (double extensions on our tax returns, so we have until October 15 to get the check in). We thought a lot about whether to keep going long in stock funds or find a safer harbor for our money. In the end, we’re still at least 30 years from retirement, and who can time the market? So it’s still a bet we’re willing to take.
And if we’re wrong–we’ve been saying we need to eat more beans and less meat, anyway.
October 9th, 2008 at 5:50 pm
There is going to be a huge bounce soon one would think, even if for only a day and a half. It should be noted that there has never been a crash of this magnitude from a market that was already well of its highs. Crashes of this magnitude in all markets, not just stocks, always come from a point hear significant long term high prices. In that regard we are in uncharted territory from a technical analysis point of view.
The credit market is capitalism, not the stock market. Credit is the mother and father of capitalism. The credit market is the most important market in the world. Credit is supplied via market mechanisms of supply and demand. It’s a market. I hate to stress the obvious but it’s important to keep repeating this. Credit is a market.
For 20 years in a growing crescendo a bizarre idea took hold that interest rates, the price of credit, was controlled by one man, The Maestro. This is an idea that is anathema to the idea of markets themselves. If one man controls a price, or one group of men, the market has been negated. Yet the champions of ‘free markets’ were the most enthusiastic purveyors of the one man market myth.
Dozens of other important myths arose along with the Maestro myth which were equally wrong or less so but served the major myths.
The credit market was destroyed on the way up. That was the fun part. Now comes the hard part.
October 9th, 2008 at 5:58 pm
You know, we’re getting to the point where Glassman and Hassett can start to look like geniuses again by just claiming that their publisher added an extra zero at the end of their book title…
October 9th, 2008 at 6:04 pm
Nah it will never go to zero, even in the Great Depression it was only off by 90 percent. . .so Dow 1400 would be Great Depression levels. … took it until 1955 to recover to the high of 1929. . .
The houses backing the securities that leverages the derivatives that became the toxic brew that is the root of all this haven’t evaporated. The still exist and collectively still have value. Just not the value the market perceives them to be.
October 9th, 2008 at 6:12 pm
No
Sometime around the end of the year, the realities of peak oil will hit
I will bet one 12 fl oz carbonated beverage of your choice that brent/wti prices for crude will continue in the range of 65-105 nominal US dollars from now until Dec 2009.
October 9th, 2008 at 6:12 pm
So here’s a question I’ve had for a while- if the gov’t buys a bunch of crap mortgages and they default, the government owns the houses, yes? Why not, you know, let people live in them as part of a housing assistance program? This will not only help from a social welfare point of view, it will also raise their value because neighborhoods won’t go to shit from ugly abandoned properties. Doesn’t cost anything more besides some administrative expenses, could bring in money if you charge some reduced rent.
October 9th, 2008 at 6:20 pm
So, in short, if we repeated the experience of 1929, the Dow would bottom out at 1400 and not recover its old altitude until 2040.
Gee, thanks, Adirondacker, for that encouraging lesson from history.
October 9th, 2008 at 6:20 pm
“The question is, how many people who make it through this mess are going to get wiped out in the false rallies of the next few years?”
Nah.
The likely correct model here is Asia circa ‘98, not America circa ‘29.
The bottom is coming reasonably soon – who knows if it’ll be at 8000 or 6500 – but the bottom is coming.
And if you’re smart or lucky enough to buy heavily at the bottom – there will only be a short timeframe to do so – you’re going to make a shitload of money.
We’re likely to be trading above today’s levels in a year.
October 9th, 2008 at 6:23 pm
If you’re young, this is great news. I’m a good 30 years from retirement, so I’m in the position to buy stocks, not sell, no matter what the market is doing. Right now my dollar is going like 70 percent farther than it was a year ago. If I could afford it, I’d be putting more into my 401k than I am now. Even if the market goes lower, it’s still better to buy now, with the dow at 8500, than it was to buy a year ago with it at 14,000 or whatever.
October 9th, 2008 at 6:27 pm
We’re off roughly 40% now from year-ago highs. I think we’re getting close to the point where the middle class is going to start panicking.
Personally, I thought the first 20% drop was kind of fun. After all, it’s a buying opportunity, and I still have 25 years for my 401(k) to recover. I downloaded a copy of “Happy Days Are Here Again” and enjoyed gallows humor about the New Deal. But in today’s drop it hit the point where it definitely wasn’t fun.
October 9th, 2008 at 6:32 pm
“If you’re young, this is great news. I’m a good 30 years from retirement, so I’m in the position to buy stocks, not sell, no matter what the market is doing.”
This presupposes that the model here indeed is Asia ‘98 (which I think it likely is) and not America ‘29.
If you’d bought stocks in ‘29, you would have still been underwater in the late 50’s…
October 9th, 2008 at 6:33 pm
Numerological speculation:
I noticed that, in the Great Depression, the DOW dropped from its ~300 high and settled at 1/7th that, around the value of gold.
If history repeats (or rhymes well), we may see a DJIA settling at ~2000 after gold inflates to meet it.
-
October 9th, 2008 at 6:36 pm
Buy low, sell high. Most people do the opposite.
October 9th, 2008 at 6:40 pm
“Personally, I thought the first 20% drop was kind of fun. After all, it’s a buying opportunity”
That’s bull market logic.
In a bear market, drops generally aren’t buying opportunities. Only the last drop is. And that last drop is the mother of all buying opportunities, but you’ve got to be either smart or lucky to know it when you see it, because it comes and goes very quickly.
October 9th, 2008 at 6:59 pm
Sometime around the end of the year, the realities of peak oil will hit.
An economic downturn is precisely not when peak oil issues will become more apparent because of the accompanying decline in demand. The recovery from this debacle a few years from now, however, is liable to to be negatively impacted by oil supply issues. This economic crisis exacerbates the likelihood that the transition away from petroleum will not be, um, graceful.
October 9th, 2008 at 7:47 pm
Have Glassman or Hasset spoken publicly about Dow 36,000 recently? It would be fund to ask them if they still believe they were fundamentally correct.
October 9th, 2008 at 8:12 pm
I’m actually considering buying stock for the first time in my life. I can’t be a big-time investor but I can probably scrape up $500, and if I can just put it into companies I think are valuable now, I could expect to see a tidy — not huge, but very nice — profit if I can just leave it alone and forget about it for a long while.
October 9th, 2008 at 9:07 pm
There are ways to play this market profitably – SKF is the EFT that inversely tracks the financial sector. Last Friday it was at 95 – today it hit 185.
Does anybody think that the financial sector problems will be solved tomorrow? If not, then you bave a profitable place to put your money.
October 9th, 2008 at 9:32 pm
It think it could hit 7000 or maybe lower. There is so much more bad news in store over the next 2 years or more, that no one should be hurrying to get back in. We still seem to have this 1990s bull mentality in some quarters.
“If you’d bought stocks in ‘29, you would have still been underwater in the late 50’s…”
Yes–The notion that the stock market is always great in the long term should be followed by the caveat: very long term. The 87 crash through the end of the 90s bubble was awesome. Since then, flat or worse. From the 1965 to early 80s was flat. Before that ‘54 to ‘65 was great. The window of doing much better could be over 20 years. Wouldn’t you have liked to be in bonds during the 70s rather than stocks? The only consolation about this nosedive is the thought that, say, Citibank has to climb back to its 52-wk. high before I retire. Which means it would have to quadruple in price. But maybe it won’t.
In a very very macro sense, it’s correct that “the fundamentals” are strong–expertise, infrastructure, the labor force, industrial plant, the technology base, and the legal/ political institutions of the world economy are good enough to produce the kind of corporate profits that we were seeing a couple of years ago. But that could take a while.
October 9th, 2008 at 9:48 pm
After today’s close I did a spreadsheet calculating a 500 point drop every weekday for the next 3 weeks. It hits 0 on November 4. Too bad “irony” is one of those elitist words.
October 9th, 2008 at 10:00 pm
Presumably at some point investors will feel they’re looking at bargain prices and start buying again. Right?
Yes, but there are sucker rallies all the way down.
My guess is therefore that the bottom is very near, but I could be wrong. I frankly hope I’m wrong, because President Obama’s congressional majorities are likely to be thinner if the Dow increases a thousand points over the next three weeks.
So, so wrong.
Crashes of this magnitude in all markets, not just stocks, always come from a point hear significant long term high prices. In that regard we are in uncharted territory from a technical analysis point of view.
We’re in uncharted territory because the real stock market crash occurred in 2000. That was the bull peak (just like ‘29) with total market cap at 200% of GDP. (Fuck low PE in that or the current context. If your market is overvalued relative to the size of your economy, and you know they lie about earnings, then looking for low PEs is a broken approach.) The Feds (and the Fed) did everything they could to keep the market up, and they succeeded… for awhile. That doesn’t mean the overhand went away.
Sp: Why not, you know, let people live in them as part of a housing assistance program?
We should totally do that; hell, rent at below market. Alas, we have the Bush administration to hand.
Petey: We’re likely to be trading above today’s levels in a year.
Put down the crack pipe, Petey.
We’re in a cyclical bear. From 19-umpty to 1987, the market never crossed over 100% of GDP (unless you use an alternate measure of capitalization and/or GDP, and then it only gets over 100% of GDP in a bubble). When it got up to 100% that always marked a top (as it did in 1987 – but that was a narrow bubble). At a total market cap of 14t, we were at 100% a coupla months ago.
But back to the pre-’87 behaviour: the market was always UNDER 100% and the median position was around 50% of GDP. Real bottoms tended to be at 30-35% of GDP, and the great WWII selloff bottomed around 24% of GDP.
50% of GDP would put the DOW at around 6000. (Keeping in mind that GDP will be shrinking in the future.) So a real bear bottom would be down around 4500, maybe as low as 3000. Bear bottom markets hang around for five-six years at a time. (See the 70’s, the 30’s, etc.) So trying to bottom fish on the continental shelf is dumb.
Last point: people are still operating with their senses calibrated to the bubble, which is why the enviroment is so confusing. 1999 was the biggest ever bubble, with the market far, far above any connection to the underlying fundamentals, and it’s taken this long to start really working off the slack. (As happened after the peak of ‘65 – the bottom didn’t show up until 73-74, and the bull didn’t resume until 82.)
max
['So keep you powder dry and your head about you.']
October 9th, 2008 at 10:25 pm
Now that a crazy war with Iran is—probably!—off the table, Max should start up his own blog again…
October 9th, 2008 at 10:30 pm
A lot of people are missing the point. Yes, the market didn’t recover to 1929 levels until the 50s, so if you spent ALL of your money and future money on stock at the peak you were screwed. But unless you have a huge lump sum or are basically at retirement and won’t be putting much more money in, this isn’t a big issue. You won’t be buying at 1929 prices, you’ll be buying at 30, 31, 32, 33 etc etc prices and will get better returns in equities on that money than you would in any other vehicle.
I also always get a kick out of people saying something along the lines of “I don’t put any money in stock, after the country crashes it won’t be worth anything!” Well, if that happens your gold/cash/whatever ain’t gonna be worth jack shit either. You’ll have a lot bigger worries than your 401(k) anyways.
You can’t successfully time the market. Put money in regularly and automatically and you will buy more at low prices and less at high prices.
October 9th, 2008 at 10:52 pm
I don’t have much money (just out of college).
Yet, when I took a nap this evening, woke up, and saw that Dow went down to 8500, I called vanguard and purchased a 4,000 dollar total stock market account.
IF YOU ARE IN YOUR 20′S, BUY!!!!!!
October 9th, 2008 at 11:29 pm
blah Said: Have Glassman or Hasset spoken publicly about Dow 36,000 recently? It would be fund to ask them if they still believe they were fundamentally correct
I don’t know what either of them have said recently about the DJIA. But I did find this interesting little tidbit in Wikipedia:
As of September 2008, Hassett was serving as an economic advisor to John McCain’s Presidential campaign.
October 9th, 2008 at 11:36 pm
The market is nowhere near the bottom. Where the bottom will be depends upon what is done with “recapitalization”. That is a long word that has one meaning and only one: “running the printing presses”. This is why the talk is of international coordination: no one wants to dilute their currency unilaterally.
October 10th, 2008 at 12:08 am
Fact is nobody knows what’s going to happen. But I can provide my own food, fuel, and water, in part because I figure this worst case scenario might happen. What I can’t provide is political stability. For that I am willing to pay to pay taxes, and vote.
October 10th, 2008 at 12:09 am
The CDS market has MetLife in dying territory. They opened their books not that long ago and this shouldn’t be happening based on normal market fundamentals. Is there inside dirt working it’s way out or is is it sheer flop sweat? If MetLife is tanking don’t buy a goddamn thing. Everybody’s fucked.
October 10th, 2008 at 1:28 am
A few pithy observations:
1. We’ve never seen anything like this in our lifetime.
2. If the people of Iceland had to pay off the debt of their banks it would cast each inhabitant more than $270,000 dollars. The people of the United States have no idea what the amount of debt that is on the books of their banks.
3. Common stocks have no inherent value. A share of IBM is worth only what someone pay, and it could be five dollars. Yes, the Dow can come close to zero if no one wants to buy any stock.
4. The inflation rate in Iceland this year will rise to 75%
5. Unfortunately, no one has any idea how to fix this mess. Paulson has been wrong again and again.
6. An economy based on consumer spending when the money for that spending is borrowed funds becomes a house of cards when consumers can no longer borrow.
7. President Bush will address the nation on the morning of October 10, 2008. He will tell us that the economy is basically sound. And just as oil prices dropped after he suggested we drill off shore, the market will rally back to 10,000. This will then allow the Americans to concentrate on the real issues of the campaign: Obama’s link to terrorism and foreign drug dealers.
October 10th, 2008 at 1:59 am
OH, I forgot to mention observation 8:
“The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago.”
If we have to make good all the derivatives, it will cost every man, woman and child in America about $1,770,000 million dollars. That’s why observations 1 and 5 are important.
Our gross national product is 14 trillion; the amount of dervivatives is 38 times our GNP. How in a sane society did that ever happen?
October 10th, 2008 at 2:29 am
Don’t buy stocks until you see a Time or Newsweek cover “Stocks Permanently Down?” or something like that … at that point the last suckers (”knife catchers”) will capitulate, sell, and the market will have reached bottom.
Give it 3-6 months after you see that cover … then buy as much as you can.
That’ll be the point I’ll move my retirement $$ back into stocks.
October 10th, 2008 at 2:31 am
Sane society?
October 10th, 2008 at 3:33 am
I’m definitely seeing this as a momentary panic buying opportunity, just as I did when Obama was at 51 on Intrade.
October 10th, 2008 at 6:27 am
“I’m definitely seeing this as a momentary panic buying opportunity, just as I did when Obama was at 51 on Intrade.”
Intrade works on fundamentally different principles than the financial markets.
If Obama is undervalued on Intrade, you don’t have to worry about market philosophy, since the correct contract will be valued at $100 once the election takes place no matter what other punters think.
But in financial markets, there is no coming “election” to straighten things out.
All that said, I continue to think the model here is Asia ‘98 and not America ‘29, so this likely is a buying opportunity, (or will be soon.)
But still, in a financial market, unlike Intrade, things can be misvalued for decades, not just months.
October 10th, 2008 at 7:31 am
My question is when will the Dow go negative? I’ve got about $65,000 in negative dollars I’m willing to put in.
October 10th, 2008 at 8:40 am
I’m worried about all the boomers who are about to retire — and about to shift gears from buying their 401(k) to spending it. The pressure of all that selling makes me think that it could take a long time to climb out of this trough. Every time we get a rally, people are going to sell it pretty heavily.
October 10th, 2008 at 10:19 am
I think from a broader perspective, this is neither a good nor a bad event from the perspective of a person who has yet to invest most of the money they are likely to invest in the stock market. The bottomline is that there will only be so much economic output available in the future, and your relative share of that output is ultimately going to be determined by your relative income and your relative savings rate (minus whatever fees you pay to invest, which if you are smart will be low).
In fact, even people in or close to retirement really shouldn’t be complaining about the stock market per se, as opposed to the economy in general. Again, if they are holding onto their shares, they are still entitled to the exact same share of future economic output as they were before stock prices declined. It just turns out that people are thinking the present value of that future economic output is less than they thought a while back.
October 10th, 2008 at 10:40 am
Back in 1987, the day of the 2300->1800 one-day market plunge, I remember watching the talking heads on TV interviewing various market experts about “what it all means”.
My favorite exchange:
Newsdroid: “So, [Mr. Market Expert.] Five hundred point drop. 2300 to 1800 in one day. How long can this go on?”
Analyst: “Well, no more than three and a half more days.”
October 10th, 2008 at 10:58 am
I have a diversified portfolio, and the dividend yield is now about 5%, greater than I can get from CD’s. Dividend yield will begin to support the market soon.
October 10th, 2008 at 12:19 pm
OK, I believe that this does fit the definition of a “Secular Bear” market, so…I should be all out in cash, waiting years for the bottom, right? But I’ve tried this before, and the results sucked.
I’m half in bonds, one third in large-cap stocks (mid and small caps are out due to bad choices in my 201k), and one sixth in international stocks (although with the way the furriners have responded, I’m considering putting more contributions in there)
I’ve got a good 25+ years before I can consider retiring, so I’ll keep buying like I am, keeping a balanced portfolio and putting more money in the bank (still FDIC insured!).
I do plan on trying to get a bit more aggressive when the market craters though…so I’m PROBABLY gonna move about 5-10% into stocks in a day or two.
October 11th, 2008 at 1:05 am
“If you’d bought stocks in ‘29, you would have still been underwater in the late 50’s…”
It depends entirely on which stocks.
Some companies went bankrupt. Some new companies grew fast. If you bought both then losses on the original losers would be a logarithmicly declining share of the total, while gains on the winners was a logisticly increasing share.
But if you guessed wrong, you got all losers. Then you’d have still been underwater in the late 90’s.
Don’t buy and hold stocks unless you think you’re better than average at picking them.
Another approach is to buy stocks in companies that are making so much money they can’t think of any better use for it than give it to stockholders. Depending on your tax situation this can pay off better than bonds, and any time you like you can sell the stock and get your money back. You’re taking the risk that the company might stop making so much money, while the bonds are traditionally considered safer.
A third approach is to buy into an index fund that ought to do as well as the economy as a whole. If you believe that GDP will keep rising then this will seem reasonably safe.
Or you could think of the stock market as a casino. If you go to an actual casino the more you bet the more certain that the house percentage will eat away at your money. Brokerage fees are so low now that you might not even lose on the stock market. When the economy grows people can even win on average. So it’s potentially a much better gamble than a casino, if the casino is your alternative.
If you have money you don’t expect to need for five or ten years, and you don’t want to put it into bonds or bond-equivalents, and you don’t trust index funds just now, why not research alternate-energy companies? If you think you can pick stocks, alternate energy is real likely to be the next bubble. Of course any company you pick might go broke in the finance crisis before the new bubble even gets a good start.
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