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SPDR Dow Jones Industrial Average ETF Message Board

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  • wase13 wase13 Oct 9, 2008 11:38 PM Flag

    Test of 2002 lows is possible

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

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    • 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,


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