Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

57 responses to “Stock Market Crash Historical Comparison Update”

  1. Raj

    Now rents are cuming down. I rented in last Oct for 1300+ now they are offering the same for 1100’s

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  2. Charles Dean

    I think it’s pretty interesting to see how different they all are, which I think makes it that much more difficult to know what will happen.

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  3. Garth

    I found this comparison interesting.

    http://www.minneapolisfed.org/publications_papers/studies/recession_perspective/index.cfm

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  4. Dave Lincoln

    Feed me a steak and some red wind and I’ll give you a wild-ass guess too that’ll beat those guys’ wild-ass guesses. The Dow will be 4,500 to 5,500 by then, official unemployment will be 12 % and people will be buying all the gold then can. Hillary Clinton will still not be president, and will continue trashing the US Constitution and not putting out for her husband in violation of 2nd Corinthians.

    Just tell me when to be there, the Tim (2nd and Madison, is it?).

    Oh, and poster number one, that whole rent prices thing sounded kind of sexual the way you said it. Would you like to cum to an event with me some time? We can have red wine, steak and talk economic disaster (unless that would spoil the mood for you).

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  5. Sniglet

    I agree with Dave, that the Dow will likely wind up in the sub 6000 range by 2010. Of course, as I’ve said before I don’t think we will hit a “bottom” until the Dow is in the sub 2000 area.

    No, I am NOT predicting some sort of Mad Max, appocalyptic scenario. Japan saw an 80% decline in suburban real estate as well as stock values without a general collapse in their society, and I don’t think we will see anarchy break out in the US either (not that there won’t be a lot of individuals feeling accute pain due to unemployment, etc).

    I have written up my predictions for 2009 at http://www.surkan.com.

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  6. Slumlord

    My vote goes to the 6-7,000 range, which represents an additional 16 to 27% drop. My thinking goes like this: In an honest economy, most banks and many insurance companies would be required to admit their off-balance sheet loses and this would force them to recapitalize (get more money). The problem is that much of the money that people thought was out there was in fact imaginary. This makes it very difficult to get more money because there is not much real money left.

    The honest result of recapitalization would be for most banks and insurance companies to go bankrupt. However, mass bankruptcies would shatter the economy and send the Dow to around 3,000 and unemployment into the 20-40% range. If this came about, there would be riots and possibly complete societal collapse. Don’t overlook the very real possibility of their being lynching of people who are currently rich and powerful. The rich and powerful will do anything to avoid this, including using our tax dollars to artificially prop up the economy and, as a side benefit, the Dow.

    The choice is for them to pay a lot now, or for us to pay many times more but to spread it out over time. I think our leaders will choose the latter.

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  7. mukoh

    Wow slumlord, very optimistic you are my friend.

    Banks and rating and insurance agencies have been given unprecedented power by Feds on how to keep afloat on this. One of the local banks has serious guidance every single week on assets and administering and loaning funds.
    My best assumption is that since the peak we have seen 300+ institutions go out. I think this year however no more then 30 will fold, as left overs. The actual assets owned by banks at this point are in reality at .75% rate from the government, banks can sit on them forever with that case. That is an attempt to stabilize asset prices. Will see if it works.

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  8. Interloper

    It’s fitting that the current Dow crash is riding halfway between the Great Depression and all the others.

    This is like a hybrid of all the other crashes, and we don’t know which way it goes next.

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  9. John

    Over the years, more and more companies have switched from traditional pension to 401k. I try not to think about what will happen to our society if the stock market gives up the entire gains in its 20 year bull market run. What about the state pension funds that have lost money themselves too? Maybe human beings are more resilient than I thought and we will make do and take it in strides. But there will be a lot of pain if the market continues to sink.

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  10. isotope66
  11. Slumlord

    Sniglet,

    I like the point on your site about oil tankers sitting in port full of oil owned by speculators who are waiting for higher prices. My interpretation of this had been that they were confident that prices would rise resulting from declining production. You said that further price falls would force them to liquidate and drive prices even lower first. In the long run, I am certain that oil depletion will force prices to rise, but you may be correct that prices will fall further in the short term.

    I wish you had told me this a year ago. In November 2007, I withdrew out most of my real estate equity and put it in oil (I have been buying energy equities since 2004). If I had sold in June, I could be semi-retired by now. Instead, I am killing time at my job by posting on Seattle Bubble.

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  12. Slumlord

    Mukoh,

    You are my friend too. The weird thing about trying to be realistic is that many coworkers want nothing to do with me because I am such a downer. This downturn has a direct impact on our revenue and our employee count has gone from around 210 in January 2008 to 125 today. Our staff economist still insists that house prices have hit bottom and that the 787 program will save the local economy and thus spare us any further losses. My days are full of resisting the collective wishful thinking that takes place here and Seattle Bubble saves me thousands on therapy. You are all my friends.

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  13. S. Marty Pantz

    Didn’t some economic “think tank” officially declare a recession, and state that it began December ’07? if so, then isn’t it now officially a depression (negative growth for over a year)?

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  14. Objectivity

    Great post, Tim!! My guess is we trend down.

    On a related note, I had a meeting last July with a very prominent Seattlite. Board member of Costco, founder of company, huge dollars….you get the idea

    We talked economy and he virtually kicked me out of his office when I told him the commercial real estate market in Seattle and the stock market would soon collapse. (He probably didn’t like the idea as his broker just persuaded him to buy a couple buildings).

    What’s my point?….sometimes it the richest are so far into the trees, they can’t see the forest. They, of all people, are the most bias as they are far more invested than the rest of us.

    As a young guy (28), I think its great that these guys are losing their butts. It will clear the way for a new breed…hopefully one less greedy and more objective. Only time will tell.

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  15. Ira Sacharoff

    I’m predicting a 2009 range for the Dow of 7400-8800, and will finish 2009 at 7700.

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  16. Slumlord

    Objectivity,

    There was once a hedge fund staffed by a new breed that used rational objective modeling. Returns on their investments were better than anyone ever imagined possible, and they just got better and better until they didn’t. When Long Term Capital Management collapsed in 1998, they almost destroyed the entire financial system. In many ways, LTCM was a bigger deal than the Lehman Brothers failure in September. The main difference was that it happened during a stronger economy, masking the fallout.

    The point that I am making is that each cohort will make a point of succeeding at the issues where the previous one failed and that their own shortcomings will eventually plant the seeds for the next cohort. (In this context, I prefer using “cohort” over “generation” because cohort can group people together based on a common idea rather than just a common age.) My own example, in earlier posts today, shows how overconfidence from calling one bubble correctly can directly lead to missing the next one.

    The cycle will repeat again and again.

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  17. victorchai

    ira @15″
    I’m predicting a 2009 range for the Dow of 7400-8800, and will finish 2009 at 7700″
    It might happen alot faster and lower…I may say

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  18. Scotsman

    Dow ends the year around 6000 and continues down. We are in for a decade long slide- and then it gets ugly.

    What many fail to realize with all the noise about housing values going up or down is that the U.S. was rapidly approaching insolvency before the housing crisis began. And the fundamentals that ruled then have only gotten worse.
    Housing aside, there is too much debt in the system, and more future commitments than the government will be able to meet. In 10 years social security, Medicare, Medicaid, etc. begin to really ramp up at a time when tax revenues most likely continue to fall as the boomers retire in force.

    Housing was only the straw that broke the camel’s back, an extra bonus that accelerated the inevitable. All we need now is a slight increase in interest rates to push government deficits even higher and kill off the remaining growth in the economy, and the fun can really begin. Everything the government has done so far is making things worse. NO ONE at the federal or state level is talking about cutting spending or reducing taxes and fees. They just keep on digging the hole deeper and deeper.

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  19. TheHulk

    If layoffs continue at the rate we are seeing nationwide, I have little doubt we are heading into a halfway-depression scenario (as seen on the chart). I think the DOW will be between 6000 and 7000 at the end of 2009.

    The dismal earnings of the last quarter are just coming out. Horrible earnings will result in employers cutting investment spending even more. They will also cut costs resulting in more layoffs. More layoffs translates to even less consumer spending (and tighter credit conditions) and consequently worse earnings. Rinse and repeat.
    Until we shed the excesses of the last decade and people start living within their means (as seen from the increase in Savings the last 2 months) this cycle will continue.

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  20. David Losh

    The stock market was gutted in 1987. Mergers and Acquisitions created some of the huge corporations we have today. Technology helped to make these gigantic dreams of global economic domination a reality.

    I for one am very hopeful for the future. The Dow will fluctuate between 4000 to 6000 then settle in at about 6000. It’s what makes sense, that’s where it should be. Technology and our willingness to invest in tech stocks is what, in my opinion, pushed the Dow to the heights we have had.

    In time the emerging markets are going to gut the tech industry. All the copy right laws in the world won’t contain the growth of technology. Microsoft is great as a universal language of operating systems, but I believe that Gates will just throw in the towel one day for the greater good.

    Even if Gates holds his fiefdom together technology will get cheaper. There will simply be more of it. We want technology to grow, business wants it, and governments want it.

    By virtue of there being billions of people in the world today we need, we all need, to have a connection. Computer technology is the quickest, easiest and cheapest way to create more consumers. In the process goverments can determine economic trends.

    My other opinion is that the days of the mega corporation are coming to an end. Yes we have a McDonalds, Pizza Hut, and Starbucks on every corner of every city in the world. We’ve shown it can be done. In the process Gyros, Noodle Bars, or Tacquerias have just as much chance of growing larger.

    Each country of culture can now have a global economic presence through the internet. It’s a growing trend that I see continueing.

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  21. David Losh

    “Until we shed the excesses of the last decade and people start living within their means (as seen from the increase in Savings the last 2 months) this cycle will continue.”

    This sounds like an early 1990s statement.

    I do agree that debt is what has caused all the problems we are seeing today. We can eliminate debt by just saying no. We really should have a War on Debt.

    Come to think of it who would support it? Governments, corporations, and consumers all thrive on debt creation. Interest and fee generation on consumer debt are the back bone of our current stock market.

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  22. mukoh

    David, Umm, just FYI Dow doesn’t have that many tech companies in it. About 5. And IBM isn’t really normal high tech.

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  23. Scotsman

    Don’t know if it’s still true, but IBM used to make much of its profits from real estate. Now I think it’s mostly consulting? Things aren’t always what they seem, eh?

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  24. EconE

    I’m just wondering which 30 companies will make up the Dow by the end of the year, and who (if any) might be booted off the list and who would be brought in. I could see C, Amex or BAC being removed and replaced by some industrial giant(s) that will be part of the “Infrastructure” stimulus plan.

    Where will the DJIA be numerically? Dunno. Could it be possible that it can be “massaged” higher over time while the rest of the market continues down?

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  25. Crashcadia

    TGIFDIC

    Looks like we have a local bank failure today.

    http://www.fdic.gov/bank/individual/failed/clark.html

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  26. Jillayne

    The international edition of the NYT has nice recap of Bernanke’s speech on Monday where they’re starting to hint that we’ll have to nationalize the banks. Here’s the link:

    http://www.iht.com/articles/2009/01/16/business/16banking.php

    I almost wish they would just do it and stop pretending like it’s not going to happen. My dad, the old sage that he is, says that we don’t want this and that the government never does anything with efficiency.

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  27. Ira Sacharoff

    If the government does nothing, or nothing more and allows big banks to fail, chaos will ensue, and if the government nationalizes banks, you just know they’ll screw it up. I’m not sure which is worse.

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  28. mukoh

    IMO Amex will stay in Dow, BAC won’t because of its status right now and market cap, and if they are 40% owned by the FED then its not going to be a DOW component.

    BTW, Something from a person fairly high in MS. No official layoffs.
    Have a good weekend, get some sun, go to Mexico, enjoy.

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  29. CCG

    “The international edition of the NYT has nice recap of Bernanke’s speech on Monday where they’re starting to hint that we’ll have to nationalize the banks.”

    We now see events straight out of “Animal Farm” and “1984” on a near-daily basis, and most people think it’s for the best.

    Kruschev, how right you were.

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  30. LUC

    Calculated Risk summaries the most recent and future layoffs:

    http://www.calculatedriskblog.com/2009/01/layoffs-i-read-news-today-oh-boy.html

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  31. David Losh

    My reference to technology was how it has helped companies track data, keep inventory, and monitor distribution.

    Just as an aside I have a friend who is a farmer. He spends a lot of time on the computer. He tracks every step of his operations. He talks about future demand for soy beans, corn, and wheat. He knows the commodities market. Twenty years ago he would have been working fields, today he monitors future demand for his products.

    Wal Mart, Home Depot, and McDonalds would have employed thousands of accountants each to do what technology does with a few servers.

    Another aside is that I have a client whose family owns a trucking company. His office is where the supervisor used to sit in the operations center. There are twenty or more desks empty now replaced by him and his computers. He can now track where a container is down to the minute.

    He has developed a program used by other trucking companies using a GPS to determine costs. He also keeps very close track of the commodities market. My client shared his programming skills because of the cost of tracking a patent.

    Why not share? His money is still in trucking. The computer is a tool. Programming and software changes so fast today that by the time you patent it’s obsolete.

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  32. Objectivity

    Slumlord @ 16

    Sure, there will always be bad apples, but I don’t think LTCM is great reflection of the budding hedge fund industry. For the most part, many funds provide intelligent, responsible ways to play the market. On a whole, hedge fund investors have faired far better (down 11% on average) than mutual fund investors (down 33%+) in this downturn. Of course, that stat won’t sell newspapers, so the media chooses to demonize the industry by making Bernie Madoff the unofficial spokesperson. Check out the other end of the spectrum: (Paulson and Co. has made tons of money during this crash as they were intelligent and unbias).

    As for my optimism of a new breed, I’m scared to death for my generation as this credit crisis marks the kick off of some huge problems that will taint us for at least a decade. Next up is the cash shortage for municipalities, followed by the unveiling of the social security scam that will create the biggest uproar in history.

    Faced with this adversity, my generation could 1) raise to the challenge and reshape how america operates; 2) apathetically watch the demise of America.; or 3) begin a cultural clash the likes of which we haven’t seen since the civil war.

    Lets hope for #1.

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  33. Objectivity

    Ira-

    Nationallized banks are a far superior alternative to no banks. Granted, they govt will screw them up, but at least it will hold the system up while new banks begin to form.

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  34. David Losh

    I read the comment above mine about lay offs and went to the calculated risk site. to find:

    Bank of Clark County, Vancouver, Washington, was closed today by the Washington Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named receiver.

    Do any of you know where Clark County is? It’s in the middle of nowhere. In my opinion this is a prime example of a planned community grown beyond all proportions. As you say it is a ponzi scheme that has fed off of itself for twenty years.

    Over the years several people have lost money investing in Clark County Properties and yet the place keeps going on. I have shares in some swindle there that I inherited and wrote off long ago.

    Again, in my opinion this is worthless dirt that has been bought sold and traded mercilessly for decades and only now some one has noticed? This is the true face of the banking scams today. Individual home owners are nothing compared to these large corporate land trust schemes.

    Let’s take Trends West the Time Share company that held then sold the properties near Cle Elum Washington. They have three planned golf course in a “convenient” commute to Seattle. We’re talking thousands of acres and millions of dollars, maybe even billions if you take in the surrounding areas of building lots. The same is true in Westport Washington on a smaller scale.

    Banks, who are supposed to be protecting your money, are the conduit for these schemes, swindles, and fraud. We bleed, cry, and moan for these great institutions, but they fed the system. Lenders, and Investors hide behind these friendly faces who call us by name while taking our deposits.

    In turn banks sell stocks, create credit consumer debt, and then dummy up balance sheets to make it look like profits so they can get more small investors.

    Let the banks go. Let the Lenders and Money Changers go. The system we have is broken. It’s obvious now, but it has been broken for a long time. It’s time to let go.

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  35. garth

    David Losh,

    Do any of you know where Clark County is? It’s in the middle of nowhere. In my opinion this is a prime example of a planned community grown beyond all proportions. As you say it is a ponzi scheme that has fed off of itself for twenty years.

    What on earth are you talking about? Clark county is in SW washington and includes Vancouver, Camas and the other fastest growing places in the state. This is a very logical failure in our state from what I have seen down there.

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  36. David Losh

    It includes Vancouver, but the prime schemes are a little further north east. I agree it makes sense the bank should fail.

    For that matter have you been to Vancouver Washington? In my opinion it has been a hard luck story kind of town since the end of logging.

    Clark County Properties is a land based investment fund that is in the middle of nowhere.

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  37. Ray Pepper

    Stay on topic guys…Geesh. Stock market right? Well, my 50 K I placed in the mkt in March of 2008 is now down to 37,960. I trade daily/weekly. I never trusted the mkts and when I go over 50k in a given year I take profits on each and every trade in the form of a check. My year ends for me on Feb 28. Right or wrong I went ALL IN Friday at Mkt close for 10575 shares of (C) Citigroup.

    Its most likely the biggest GAMBLE I have ever placed on a single stock. If it gaps up to 5.00+ my triggers will be resulting in 30% of my shares being sold off. If it hits 6.00 58% of my shares are gone. If it hits 7.00 on Tuesday I’m 77% sold out. On the reverse if it gaps down to 2.50 45% of my shares are gone If we hit 0 I will still have 6000 left assuming my shares were triggered.

    Hefty gamble but I feel Obama is going to back a Fed Backed Repository for all the toxic wastes in bad loans/credit. If this occurs WATCH OUT!!! If not the Shorts and the mkts will drive this into the ground. ANYWAY–my cards are on the table and as I like to say at The Muckleshoot—IM ALL IN!!

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  38. Ray Pepper

    BTW ….I paid 3.58 pps for those keeping track at home.

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  39. David Losh

    My point is that Clark County Properties attracted investment. Planned communities there are based on a dimished employment base and people still invest. As time goes on these are the types of large scale developments that take massive losses.

    OK, in the most benign way to ask; what is the economic base of that community?

    You brought up Bellevue. Will the pretty office buildings there sustain development in say Issaquah? I think we can agree there is some potential in Bellevue, but Vancouver Washington is a different story.

    Sorry Ray, this has everything to do with the stock market. Individual home foreclosures pale in comparison to corporate profits sitting empty in large housing tracks or dirt paid for in cash awaiting development. That development bubble is what burst first.

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  40. Jillayne

    I go to Vancouver, WA several times/year to teach. Lots of people live there and commute to Portland or work in Portland and commute to Vanc. There was tons of housing growth down there during the bubble run up and over a thousand loan originators.

    I’m wondering what’s going on in Yakima, Spokane, and Pierce. There was lots of seller-funded downpayment assistance programs funding zero down, stated income loans in those counties. We’ll see the result of these in the foreclosure stats but they may not show up in bank failures.

    Many of the subprime loans are held by lender/servicers and not these smaller community banks.

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  41. Jillayne

    Well I guess we know what’s going on in Pierce County now.

    http://seattletimes.nwsource.com/html/realestate/2008637850_trashout18.html

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  42. mukoh

    David, you are fairly out there blabbering about blabber that you heard from a cubicle. Communities there are primarily bought not from jobs but from retirees. Its just like saying Bend, OR is a scheme. Get over the over analyzing everything.

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  43. jon

    Retirement areas are being hit much harder than employment centers.

    “A December survey by the senior’s advocacy group AARP showed 57 percent of Americans aged 45 or over who lost money in their investments over the past year and who are working or looking for work expect to delay retirement.”

    http://www.reuters.com/article/lifestyleMolt/idUSTRE50G1PD20090117

    When you look at jobs losses, it is comparing a 7% unemployment rate now to say 4% in good times, so the numbers of people impacted by jobs losses is smaller than the impact from delayed retirement.

    The steep stock market losses last fall are making things even worse than they already were in Miami, SoCal, Arizona, etc

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  44. 50% Off

    It’s interesting that so few can imagine the DOW being below 6000 at the end of the year! I would have thought that most readers here would understand that we are on the precipice of something quite cataclysmic and yet everyone seems to think that life will go on without too much change.

    How many thought the DOW would be this low last year? What? Really? Look where we’re at– it was an impossible thought a year ago. We’re only talking another, what 35% drop? Time to wake up and smell the tulips guys..

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  45. Ray Pepper

    Oh David David David. I bit. I finally took the time and clicked on your link and read why you hate Red Fin. I will just make this comment. The public is becoming increasingly educated about Real Estate. We get at least 5 calls each and everyday from people all over the Country wondering if we are in their state. We attend Home Shows where every citizen of Washington tells us the same thing I have heard for years,. “I FOUND MY OWN HOME ANYWAY”…The “jig” is up. The buffet is coming to an end rather quickly. The 27k Agents we have left with the NWMLS will come down to 20k and maybe less then 5k actively doing all the transactions in the next 10 years. The collapse of the NWMLS is inevitable and a far more sensible way of Buying and Selling will emerge involving Google/MSFT/Major Lenders. Red Fin will always be the pioneers and 500 Realty, Shop Prop, Handspring, Zip, Iggy’s, MLS4 OWNERS, and Findwell will all be most likely practicing in another variant form.
    Think outside the box and listen to what consumers want. Sit with us next month at the Seattle Home Show Feb 14-22. When you truly listen you will hear volumes. Never preach just listen. After the 8 day GRIND you will understand why I closed up Pepper Realty Inc. and finally gave the Public what they wanted. We are adapting to change and eager to radically depart from our current model when the time is right. But, for now we remain the BEST model for real estate purchases and sales in Washington State. Red Fin will most likely not make it in its present form but its legacy of smaller Brokerages who adapt their model will prosper as long as the Real Estate MLS system remains.as it is.
    I still say Radical change is coming in Real Estate and look forward to it . Be part of the change David. I hope to see you next week!

    In the next 5 years there will be at least 50 companies in the Puget Sound actively advertising Rebates. There is nothing to even argue about or have disdain for.

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  46. Scotsman

    50%- it’s amazing how the largest banks in the country are on the edge of failure, facing nationalization by an insolvent government, while state and local governments begin to collapse right and left, and all people can talk about is the fact that American Idol and Jack Bauer (24) are back on TV.

    David- check your calender, it’s 2009. Vancouver isn’t a “backwater” by any stretch of the imagination, and hasn’t been for 20 years. Like Seattle, its even a bit of a high tech hub. If you’re going to ramble on at least trey to know what you’re talking about.

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  47. Scotsman

    Heres are some fun facts that illustrate just how close we are to having all hell break loose. California’s current deficit is $42B dollars. If the governator totally eliminated both the Ca prison system and ALL of the government employees, CA would still be running a deficit!

    At this time CA is set to stop payment Feb. 1 on all welfare payments, tax refunds, etc.

    There are over 500,000 welfare recipients in the city of L.A. alone. Do you think they will riot? Do you think some of them will come here? What will that do to WA’s deficit? Do you think something like this can never happen? Do you think Obama and the feds will be able to make everything OK?

    Good luck.

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  48. David Losh

    David- check your calender, it’s 2009. Vancouver isn’t a “backwater” by any stretch of the imagination, and hasn’t been for 20 years.

    Thank you, you’re right, it’s been twenty years of growth. Now look at the run up of stock prices.
    http://stockcharts.com/charts/historical/djia1900.html

    Clark County has been attracting investors over the twenty years, the stock market has grown, and the Tech Industry has been the job centers we all wanted. If it were just Clark County that would be one thing. It’s also Portland, Beaverton, Estacada, and Vancouver. The “sprawl” is every where.

    Outside of Vancouver what is there? I can see the Vancouver Portland connection but beyond that I just don’t get it.

    Investment groups have been encouraging people to invest in the area, and yes, they have been for twenty years, I never saw the value and certainly don’t see the value today.

    I’m saying that I have some interest in a land development company in Clark County that was bought through a Financial Planner in 1986 or there abouts. Maybe I should have paid more attention to it, but today I’m sure it’s worthless.

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  49. David Losh

    Thanks Jillayne for the article at #42, my broker sent me the link.

    I have a company called A Spring Cleaning that has been preparing properties for sale since 1988. Actually longer than that for Real Estate companies.

    Yes, there is a ton of work, and yes, it has gotten more difficult to do. When you read the article you can see the agent quoted is owed $100K out of pocket for paying to float the property until it sells. An agent in my office yesterday was paying a $400 water bill so the water would be on for the appraisal.

    We stopped doing the repo work last year over a billing dispute. Yes, there are tons of pictures to down load, money you need to pay up front, and the people who direct the work are based in other parts of the country.

    As I said we have done this work over a long period of time, but something very different is happening now.

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  50. Mariner22

    2008 Estimated S&P 500 earnings = $48 (down from 80s-90s+)
    2009 Estimated S&P 500 earnings $42.06 and falling fast….

    Average P/E historically 16
    P/E during recessions/depressions 10-15.

    You do the math. We have a long way down.

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  51. Mariner22

    Tim – it is alarming how “professional” managers refer to the recent stock market decline as some sort of black swan 200 year flood. The truth is the market is reacting to very rationale earnings driven metrics. Earnings are cut in half for 08, looking dismal for 09, and even the bulls are beginning to wonder how robust a recovery will be ?in 2010 with all of the added goverment debt, permanent decreases in the consumer economy, and potential aversion to stock market investments by many for years to come.

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  52. Tozour

    The stock market rebounded nicely in 1933 to support FDR policies.
    The same rebound should happen with Obama. His policies of pumping liquidity into the market will be supported.

    The problem will actually be the following year…If the economy continues to struggle after the government intervention, it will make investors panicky and difficult to gauge.

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  53. Brian

    8200 is my guess. Basically, people haven’t wholly stopped being productive, and S&P 500 earnings normalized to historical earnings should be roughly $65 now. After we come out of the recession they’ll reach that level fairly quickly as we return to full employment and productivity. Doesn’t matter if earnings go to zero for 1 quarter, the market won’t go to zero, so PEs in the middle of recessions don’t work.
    The normalized market PE is 12.6 at 820. That won’t be the low, but that’s a pretty stable point that we’ll probably bounce around. Stocks frequently hit bottom 6 months before the end of a recession, and I think that the end of this year will align with that period.

    See crestmontresearch.com for the normalized earnings info.

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  54. B&W Nikes

    In 2008 there was no crash. We still haven’t heard the body hit the floor. There has been only a steady and relentless unwinding. I have been trying out the idea that the crash began with the NASDAQ and S&P in 2000, and the market failure we are experiencing now is the failure of a negligent and ineffective response by institutions to that initial event. Something like using inappropriate treatment that becomes more toxic to a patient than the initial disease.

    That said, although all of the talk right now is appropriately about deflation as all the speculators sort through the dungheap, I think inflation is ultimately going to play an impressive role. In the 1930s, there was no equivalent to the federal debt creation and ballooning money supply Bush-Bernanke-Paulsen have set in motion. That is going to have to have an effect on the index numbers, and I don’t think it will be all downward motion. I think we will stay volatile but near where we are in the 7ks and 8ks for a long time, though the relative value to dollars may continue to decrease. Something more like in a year or two a sandwich and a coffee will be close to twenty bucks, but the Dow will still be straining as it breaks 9k.

    This is a nation built of debt and speculating on future returns ever since our predecessors borrowed cash to finance a revolution. The whole of modern western civilization depends on the hope and innovation of forward looking bets. There should not be a war on debt, but a war on foolishness and people who exploit the misery of fools. There should be a war on a public education system that churns out the millions of folks who, despite other great talents, can’t do the basic household math that informs them of how much debt they can afford to repay.

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  55. Mleewallace

    I would love it if you could update once again your chart of crash comparisons. What a great chart.

    Thanks,
    Mleewallace

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