FROMY22
03-03-2009, 12:19 PM
March 2, 2009 -- "It is becoming clearer each week the life we have known has been changed forever. No longer can many afford to dine at fancy restaurants, buy designer clothes, make payments on a new Porsche or purchase a McMansion. We have enjoyed the longest period of leveraged prosperity in history."
"We came to believe our retirement would be financed by profits in the stock market. We took out home equity loans to pay for vacations. We sent the kids to college by strapping them with loans requiring years to pay back. We measured wealth by the limit on our credit cards. Now, the dream of perpetual prosperity has ended." - From old-timer Bill Gary who's been writing the terrific Price Perceptions commodity advisory for 41 years (800 231 0477).
I think about the market maybe 20 hours a day (I sleep the other four hours, but I guess I even dream about the markets). Anyway, here's something that I came up with that shocked me. Let's take the bottom of the Great Depression when the Dow collapsed in July 1932 to 41 (it's never been lower than that since). Then let's take the Dow high in October 2007 at 14164. What's the halfway level of the entire climb from Dow 41 to Dow 14164? That halfway level is 7082. OK, Well, last Friday the Dow closed at 7062, 20 points BELOW 7082, the halfway level of that prodigious climb.
What does this mean? This means that as of last Friday the Dow has given back slightly more than half of all its gains since the bottom of the Great Depression. Think of that -- it shows us what horrendous damage has been done to the market since 2007. No wonder Warren Buffet's Berkshire Hathaway has lost half its value, so far, in this brutal bear market! Now Buffett tells us that the US economy will be "in shambles" for the rest of 2009.
Here's something else. In yesterday's New York Times there's a whole page of opinions by leading analysts regarding where each analyst sees the ultimate bottom of this bear market. This is an exercise in futility. One of the biggest mistakes one can make in investing is placing a limit to where you think a bull or a bear market will end.
The bitter fact is that nobody, no brilliant analyst, has any idea of where this bear market will end. What if earnings and dividends collapse, and price/earnings sink below 6 (it's happened before)? Under those circumstances, the Dow could sink as low as 1000 or even lower. We know that bear markets, following great bull markets, tend to overrun themselves on the downside. Therefore, my own advice (to you and myself) is that we should have no preconceived notions as to where this bear market will end.
How bad can it get? I honestly don't know. A lot of seasoned investors are congratulating themselves on being smart enough to be largely in cash over the last year. But wait -- suppose the US dollar collapses along with most fiat money? In that case, nobody will want to hold Federal Reserve Notes. Nobody will want any fiat money backed by any country (remember, all fiat money must be backed by the country of issue).
"We came to believe our retirement would be financed by profits in the stock market. We took out home equity loans to pay for vacations. We sent the kids to college by strapping them with loans requiring years to pay back. We measured wealth by the limit on our credit cards. Now, the dream of perpetual prosperity has ended." - From old-timer Bill Gary who's been writing the terrific Price Perceptions commodity advisory for 41 years (800 231 0477).
I think about the market maybe 20 hours a day (I sleep the other four hours, but I guess I even dream about the markets). Anyway, here's something that I came up with that shocked me. Let's take the bottom of the Great Depression when the Dow collapsed in July 1932 to 41 (it's never been lower than that since). Then let's take the Dow high in October 2007 at 14164. What's the halfway level of the entire climb from Dow 41 to Dow 14164? That halfway level is 7082. OK, Well, last Friday the Dow closed at 7062, 20 points BELOW 7082, the halfway level of that prodigious climb.
What does this mean? This means that as of last Friday the Dow has given back slightly more than half of all its gains since the bottom of the Great Depression. Think of that -- it shows us what horrendous damage has been done to the market since 2007. No wonder Warren Buffet's Berkshire Hathaway has lost half its value, so far, in this brutal bear market! Now Buffett tells us that the US economy will be "in shambles" for the rest of 2009.
Here's something else. In yesterday's New York Times there's a whole page of opinions by leading analysts regarding where each analyst sees the ultimate bottom of this bear market. This is an exercise in futility. One of the biggest mistakes one can make in investing is placing a limit to where you think a bull or a bear market will end.
The bitter fact is that nobody, no brilliant analyst, has any idea of where this bear market will end. What if earnings and dividends collapse, and price/earnings sink below 6 (it's happened before)? Under those circumstances, the Dow could sink as low as 1000 or even lower. We know that bear markets, following great bull markets, tend to overrun themselves on the downside. Therefore, my own advice (to you and myself) is that we should have no preconceived notions as to where this bear market will end.
How bad can it get? I honestly don't know. A lot of seasoned investors are congratulating themselves on being smart enough to be largely in cash over the last year. But wait -- suppose the US dollar collapses along with most fiat money? In that case, nobody will want to hold Federal Reserve Notes. Nobody will want any fiat money backed by any country (remember, all fiat money must be backed by the country of issue).