Stock Market Crash

October 5, 2008

The question is NOT will the stock market crash? The question is not will the stock market CORRECT. Hey, all of that stuff has already happened. Have you noticed the Friday closing numbers on the three major indexes? But, neither are we facing a depression style stock market decline of 90%. Enough people will commit suicide with Dow 7,000. It doesn’t need to drop to 1,200 (90% decline).

While last weeks 778 point drop of the Dow for one day was the greatest single day point drop, it could even come close to a top percentage drop. But let’s face it. For the year the Dow is down more than 3,100 points, the Nasaq down more than 700 points, and the S&P 500 almost down 400 points.

OUCH!

And the reality of all that is forthcoming very shortly when the 3Q 401k and other retiurement fund realities come in the mail. The $700 billion dollar bail out can’t change those figures and I doubt if it can change 4Q pain either. Let’s get real about the state of the economy here in America and world wide. It’s not going into a depression though you will be DEPRESSED!

Sometime before Thanksgiving (can you say right after the election?), Paulson will begin the process of buying some $250 billion of worthless assets. And then before he can spend any more money, there will be a new president. That doesn’t mean things will radically change because even if it is McCain, he’ll be dealing with a more Democratically balanced Congress. Ah, reality!

banks will continue to hoard capital, credit markets will stay tight, and loans will get even more expensive. Unemployment is going to keep dropping. Can you say 6.5% unemployment sometime in the 1Q of ’09, at the latest? It’s not going to be a merry Christmas, or at least not as merry as consumers would pretend.

Lest we forget, we live in a global economy that continues to weaken. The Euro is tanking and banks in Europe are now folding. Oil has had it. The party is over! I smell $75 a barrel regardless of what Chavez would like to see or what OPEC might do. How far the Dow falls is anyone’s guess, but my guess is a lot lower than people think- or want.

As Richard Russell wrote Friday, “Under Dow Theory principle which he’s followed all his life, we now have a bear market reconfirmation.” BEAR is in brrrrrr. Dow FIVE DIGITS will give way to Dow FOUR DIGITS before we know it. For me, that’s the defintion of stock market crash in any terminology.

Written by Ernie · Filed Under Daily Commentary