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  • barbershores barbershores Oct 9, 2008 10:24 PM Flag

    Test of 2002 lows is possible

    Mr. Wase,

    there will be no successful test. We are in a meltdown of the financial system. The government does not know how to fix this.

    The share price is not going to pop back up when it gets to the lows of 2002 because it is a support area.

    We are in a major bear market. No technical channel lines will lend support, no fibronatzi numbers, no old lows are going to matter.

    The large institutions holding stocks are selling them and the money is to be used for other purposes. They aren't pulling their cash out to put it back in the market later. The funds will be gone.

    Earnings on US stocks are collapsing. In the big picture, the stock market is about earnings. Earnings dropping means stock prices dropping. If earnings drop a whole lot, then, well, you get the picture. We are sliding into at best a recession, with the collapse of the financial system more likely a depression, with good navigation by the fed and the treasury we won't slide into a great depression.

    This is not the time to dollar cost average into anything.

    This is a time to look for safety and fear inflation.

    Best of luck, and God bless,


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    • Agreed.
      This is time to seek shelter if you have'nt already.So glad I pulled everything out early August of 07.
      Good luck as well.

    • r u suggesting we are going to go down to the lows of 1932 on the DOW which were 52 points.

      • 1 Reply to wase13
      • Mr. Wase,

        I am not thinking that we will go down to the same low price level as 1932 of "41". I am saying that the main cause of the last great depression was a melt down of the financial markets. This caused a sell off which lasted about 34 months and ended in a drop of about 7/8ths of the stock values from the peak. From the closing peak of 378.21 on September 3rd, 1929 to the closing bottom of 41.20 on July 8th, 1932 the dow dropped 89.1%. An equivalent low now based on the recent peak of October 9th, 2007 of 14164.53, exactly 1 year ago today, would be 1543. I don't know if we will go that low but it is in the "probable" range. 8500 as some have been suggesting will not be the low. 7000, which is about 1/2 of the peak, will not be the bottom. It will be something lower than that. In the peak of 1929, I understand PE ratios were quite high. Ours in 2007 were quite reasonable. All other things being held equal, this may mean we would only drop down to 3000 or so.

        The size of the drop in the dow is not going to be the biggest problem however. The biggest problem will be how Mr. Paulson tries to stop it. I believe from congressional pressure, he could put so much liquidity into the market that he could cause hyper-inflation. He might keep the dow from dropping so much, he might save all of our savings from evaporating in FDIC insured accounts, but it won't matter if it ends up costing $10,000 to buy a loaf of bread. Then we lose everything.

        The problem we have today is that our large financial institutions are failing. To stay solvent, they must sell what assets they can. Their bond holdings are all frozen up. Much of it doesn't have much value anyway. They are selling off all of their stock with no intention of buying it back anytime soon, as they do in most pull backs. They need to use the money to clear out debt and unwind derivatives so they can continue operating be it in a much smaller form. This process will continue in a downward spiral for some time.

        I am not saying that we are going to go down to some predictable number. What I am saying is that the down draught we are in now is of the same scale as 1929-1932.

        Best of luck, and God bless,


    • "good navigation by the fed and the treasury" is what got us into this mess to begin with. They don't know how to steer a ship, so just give me a life boat. At least I can read a compass.

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