Dow Closed below 10,000

[boozehound]

Wow. The Dow Jones Industrial Average closed just below 10,000 today. It was over 14,000 briefly at its height. You have to think that it can't go too much lower, but you never know, particularly now that the rest of the world is dealing with many of the same credit issues that the US is facing.

One thing that I am not very clear on: is the financial turmoil that the rest of the world is facing in their credit and financial markets the result of them holding US CDOs and other mortgage backed obligations secured against US properties, or did other countries engage in the same reckless lending that the United States did? Does anybody know the answer to this?

On a brighter note, Oil closed below $90 per barrel. Hopefully oil will at least stay cheap until the economy recovers. The easing of commodities in general could go a long way toward lessening the severity of the recession.

[xudash]

Wow. The Dow Jones Industrial Average closed just below 10,000 today. It was over 14,000 briefly at its height. You have to think that it can't go too much lower, but you never know, particularly now that the rest of the world is dealing with many of the same credit issues that the US is facing.

One thing that I am not very clear on: is the financial turmoil that the rest of the world is facing in their credit and financial markets the result of them holding US CDOs and other mortgage backed obligations secured against US properties, or did other countries engage in the same reckless lending that the United States did? Does anybody know the answer to this?

On a brighter note, Oil closed below $90 per barrel. Hopefully oil will at least stay cheap until the economy recovers. The easing of commodities in general could go a long way toward lessening the severity of the recession.

booze,

Other countries are different not only with the way they lend, but also with respect to property law. I am no expert in this and I couldn't possibly comment on a country by country basis, but the safe answer is that most other countries don't lend like we lend because their capital markets are not as sophisticated as ours.

In other words, SECURITIZATION and investments made in collateralized mortgage obligations (CMOs) globally are causing the financial wildfires, not, as a fictitious example, Peru's forray into its banks offering Option ARM mortgage products for Indians in the Andes.

I believe the American financial marketplace is the only place in this Solar System capable of cooking up a mortgage product that can lead to negative amortization that is positioned to be attractive, initially, to those that, shall we say, found the door to home ownership opened thanks to the Community Reinvestment Act, which itself was a masterstroke of Jimmy Carter, but was given its full set of teeth under William J. Clinton.

I'm all for home ownership. I just happen to think that the home buyer should be able to afford it. Silly me.

[MADXSTER]

On a brighter note, Oil closed below $90 per barrel. Hopefully oil will at least stay cheap until the economy recovers. The easing of commodities in general could go a long way toward lessening the severity of the recession.


Seems to always go down before an election. Hmmm.....

[vee4xu]

You have to think that it can't go too much lower

It's that kind of thinking that is partly responsible for where we are today. Never underestimate how much a market can decline. I get your point booze and you make a lot of good points about investments. But, there are many investors who follow the herd and create markets where markets do not exist. It is simply the result of unbridled capital creating fake markets. Personally, I would never invest at this point. I think it takes expert knowledge of markets and companies to invest now. That said it is always better to invest during a bear market. If it is good enough for Buffet it is good enough for me. Yet, I will wait until there are some legs under this market and fundamentals warrant investing. I am too apprehensive to be a leader in any kind of stock investing. Real estate, yes. Stocks, no.

[boozehound]

booze,

Other countries are different not only with the way they lend, but also with respect to property law. I am no expert in this and I couldn't possibly comment on a country by country basis, but the safe answer is that most other countries don't lend like we lend because their capital markets are not as sophisticated as ours.

In other words, SECURITIZATION and investments made in collateralized mortgage obligations (CMOs) globally are causing the financial wildfires, not, as a fictitious example, Peru's forray into its banks offering Option ARM mortgage products for Indians in the Andes.

I believe the American financial marketplace is the only place in this Solar System capable of cooking up a mortgage product that can lead to negative amortization that is positioned to be attractive, initially, to those that, shall we say, found the door to home ownership opened thanks to the Community Reinvestment Act, which itself was a masterstroke of Jimmy Carter, but was given its full set of teeth under William J. Clinton.

I'm all for home ownership. I just happen to think that the home buyer should be able to afford it. Silly me.

So basically we kind of caused the turmoil in the global economic markets with our reckless lending? If I were one of the other countries I would be super-pissed at us right now.

Also, I fear that this may have a future effect on the willingness of other countries to invest in the American market.

[boozehound]

You have to think that it can't go too much lower

It's that kind of thinking that is partly responsible for where we are today. Never underestimate how much a market can decline. I get your point booze and you make a lot of good points about investments. But, there are many investors who follow the herd and create markets where markets do not exist. It is simply the result of unbridled capital creating fake markets. Personally, I would never invest at this point. I think it takes expert knowledge of markets and companies to invest now. That said it is always better to invest during a bear market. If it is good enough for Buffet it is good enough for me. Yet, I will wait until there are some legs under this market and fundamentals warrant investing. I am too apprehensive to be a leader in any kind of stock investing. Real estate, yes. Stocks, no.

I agree that the market as a whole is tanking, but there are still some relatively safe places to park your money. Strong consumer products companies as an example. General Mills, Kellogg's, P&G, Kraft, etc. have, so far, done very well in comparison to the rest of the market. Wal-Mart and Kroger are probably safe bets, as are Kimberly Clark and Unilever. They are companies that produce or distribute products that people need, and they have a history of stability and weathering economic downturns. They were not very 'sexy' stocks to invest in when the market was going wild, but they are looking pretty good now.

Furtunately retirement is a looonggg way off for me, and I don't have much in investments, however I am not going to shy away from contributing to my 401(K) and IRA. I will be very careful with my allocations however, and try to keep my meager savings and investments with companies that have a history of prosperity.

The people that I really feel for are people who are in their late 50's to early 60's and have no pensions, just investments. Retirement any time soon is looking like a pipe dream for those people. I fear that we may have another problem on our hands when many of those people reach retirement age, unless the market rebounds. Unfortunately I don't think that the market as a whole is going to rebound up past highs any time soon. The market got way too inflated, and there wasn't enough real production to back the prices that people were paying for stocks.

It is going to by a bumpy road as we Americans try to cope with the economy. The government is going to have to make some tough choices as well if we hope to ever pay down the spiraling national debt, which is another major issue, IMO.

[bourbonman]

... however I am not going to shy away from contributing to my 401(K) and IRA. I will be very careful with my allocations however, and try to keep my meager savings and investments with companies that have a history of prosperity...
Smart. Think of tis as stocks are on sale.make some sound purchases of quality products while they're on sale and enjoy the return later. :)

Now about your comment about 50-60 year olds. Do you have a spare room? ;)

[American X]

I've said Dow's reporting has been way below for a couple years now.

[vee4xu]

Smart. Think of tis as stocks are on sale.make some sound purchases of quality products while they're on sale and enjoy the return later. :)

Now about your comment about 50-60 year olds. Do you have a spare room? ;)

b-man, he did say late-50's. So, he gave us some room.
:cool:

[XURunner85]

one way to get this economy going and to protect yourself during these tough times is to buy more beer, the more beer you own the more they have to produce and if we can keep buying it up, there will be a run for more beer, where you can buy more....this is way better than widgets....

[xudash]

A couple of thoughts:

1. The stock market has historically performed well over time. It is extremely hard to beat, unless your grandfather was sitting on a few thousand acres when a homebuilder looking for a subdivision site, a GE plant development official looking for a factory site, or a U.S. DOT official looking for some right of way for an interstate highway came along, with a checkbook. I don't know where the market is headed, but I believe it is safe to say it will continue to rise, albeit at a slower pace and without the silly appreciation we saw in the 90's, during the dotcom era, when fundamentals were tossed out the window.

2. Isn't it Warren Buffet who takes the position of stay cool when everyone else is pannicking and pannick when everyone else is too cool?

Seriously, the problem now is trying to get your arms around the bottom. I have no earthly idea what that could be. Nonetheless, strong companies having strong fundamentals and products and services that are needed - are required as opposed to wanted - should be well positioned when the economy finally turns.

You cited good examples. Perhaps you could look for some dividend yield plays in all this: find a well priced stock (i.e. good value in today's market) that is paying a dividend that is yielding north of 5% to grab some reasonable, risk-adjusted return.

Whatever you do, stay balanced.

[Xpectations]

The broad indices are just now getting to historically normal valuations on a normalized earnings basis. It seems worse because of where we've been (i.e., way overvalued for years).

The S&P 500 reached valuations on a normalized basis in excess of 30x earnings in 2000. To put that in perspective, the highest valuations ever in market history prior to the 1990s were 21x in 1929 (and we know how that ended).

Even at the October, 2002 bottom, when the S&P 500 had been cut in half and rebounded for a 5-year bull market, valuations were still at over 15x earnings, which is greater than the historic average (13.5x) or the historic median (11x).

That's amazing when you think about it. Most bear market troughs end with valuations in the single digits and the 2000-2002 bear market -- which included a 50% drop -- still ended with valuations based on normalized earnings on the historically high side.

We have now seen multiple bubbles of massive scale burst (Internet stocks, broader stock market, housing, commodities), and only now have valuations crept back into "typical" territory historically speaking.

We have been on a massive consumption binge based on debt and credit. It will take some time to unwind but this will not result in the next Depression. It just feels that way after weeks like the last few.

I started to scale back into stocks today and I've been market neutral for a bit over 4 years.

[PM Thor]

Xpect, dumb it down please. We have undecided voters on the board who need the help.

And Dash, I am following Buffett big time right now. Sure, I am losing money right now, but I am putting 30% of my investment into the market on stocks that are falling (at a moderate level). Why? CHEAP....CHEAP.....CHEAP.

Since I ain't gonna cash out for 20 years, it's a good investment for me.

[XUglow]

My 401(K) is now a 40.1(K).

[dc_x]

The broad indices are just now getting to historically normal valuations on a normalized earnings basis. It seems worse because of where we've been (i.e., way overvalued for years).

The S&P 500 reached valuations on a normalized basis in excess of 30x earnings in 2000. To put that in perspective, the highest valuations ever in market history prior to the 1990s were 21x in 1929 (and we know how that ended).

Even at the October, 2002 bottom, when the S&P 500 had been cut in half and rebounded for a 5-year bull market, valuations were still at over 15x earnings, which is greater than the historic average (13.5x) or the historic median (11x).

That's amazing when you think about it. Most bear market troughs end with valuations in the single digits and the 2000-2002 bear market -- which included a 50% drop -- still ended with valuations based on normalized earnings on the historically high side.

We have now seen multiple bubbles of massive scale burst (Internet stocks, broader stock market, housing, commodities), and only now have valuations crept back into "typical" territory historically speaking.

We have been on a massive consumption binge based on debt and credit. It will take some time to unwind but this will not result in the next Depression. It just feels that way after weeks like the last few.

I started to scale back into stocks today and I've been market neutral for a bit over 4 years.

This is exactly right. This 30% or so drop this year has finally brought the S&P 500 down to a 15x multiple, which is still slightly above the historical average. In really bad markets the valuation has dropped as low as 7x, which would require a further 50% drop. I doubt it will get that bad with interest rates as low as they are, though.

[Kahns Krazy]

Simply using one metric to compare the stock market of the 1920's to the stock market of the last 20 years is a bit of a narrow view. I'm not suggesting to ignore it entirely, but the economics of business have changed.

Sustainable growth rates in some industries far exceed anything that would have been possible in 1920. Accounting rules, and therefore reported earnings, are different than 100 years ago. The relationship of past earnings to the overall valuation of a company is not the same. Frankly, it would be pretty sad if the last 100 years hadn't made some improvements in business efficiency, the implementation of technology and the ability to realize future opportunities in a way that didn't exist in 1920.

Having said that, nothing will stop the irrational investor from pulling money out of viable stocks in a panic. Healthcare stocks were down 10% across the board yesterday. If someone can explain that to me, I'd appreciate it.

[XUglow]

Healthcare stocks were down 10% across the board yesterday. If someone can explain that to me, I'd appreciate it.

In a word... panic.
I went to my bank yesterday to make a deposit, and there were a lot of people in there pulling cash out of the bank. The bank employees were perplexed. The bank manager stood on a chair and announced that the bank was fine, but the cash-seekers were undeterred. I got to go to the head of the line because I was only making a deposit. Everyone else had to wait for more cash to arrive.

This may be an unfair observation on my part, but the people waiting for cash didn't appear to be the brightest bulbs on the planet. They were obviously acting off of unfounded rumors.

I hope that is the closest thing to a "run" that I ever see away from the NCAA tournament.

[Xpectations]

Simply using one metric to compare the stock market of the 1920's to the stock market of the last 20 years is a bit of a narrow view. I'm not suggesting to ignore it entirely, but the economics of business have changed.

Sustainable growth rates in some industries far exceed anything that would have been possible in 1920. Accounting rules, and therefore reported earnings, are different than 100 years ago. The relationship of past earnings to the overall valuation of a company is not the same. Frankly, it would be pretty sad if the last 100 years hadn't made some improvements in business efficiency, the implementation of technology and the ability to realize future opportunities in a way that didn't exist in 1920.

Having said that, nothing will stop the irrational investor from pulling money out of viable stocks in a panic. Healthcare stocks were down 10% across the board yesterday. If someone can explain that to me, I'd appreciate it.

I suppose I'd buy that if you could explain what has fundamentally changed.

Earnings for the S&P 500 continues to grow predictably (not from one year to the next, which is noise, but on a moving average basis, which is signal) within the 6% growth channel, as it has from the 1920s on. Productivity growth has continued at a similar, predictable rate. Do you seriously believe that technology has improved productivity at a pace that exceeds the improvements of industrial innovations in the early half of the previous century? If you do, I'd love to see the data to back it up because my data series do not.

There are 3 and only 3 fundamental contributors to investment returns:

Earnings growth
Dividends
Valuations

Anything else simply drives one of those three areas. As I've explained, earnings growth continues to move as it has for the past 80 years. Dividends are generally less than half of what they were in those earlier decades. And valuations move for all sorts of reasons (inflation, near-term pressures to earnings growth, outsized speculation or fear, etc.).

Sorry, but I don't buy "this time it's different" arguments. Investing (as opposed to speculating) is still about buying into a stream of future discounted cash flows. This new notion that valuations are supposed to remain perpetually at 20x+ is illfounded.

[Kahns Krazy]

one way to get this economy going and to protect yourself during these tough times is to buy more beer, the more beer you own the more they have to produce and if we can keep buying it up, there will be a run for more beer, where you can buy more....this is way better than widgets....

Did you happen to see the story in the WSJ yesterday that listed the carbon footprint of different products? A six pack of beer was one of the 6 products featured in the header of the story, and had by far the lowest carbon footprint. I'm not a drunk, I'm green

[nuts4xu]

I'm not the greenest guy in the world, but I do LOVE beer.

[XU05and07]

Another 500 point (5%) drop today...where and when is the bottom?

[xeus]

Did you happen to see the story in the WSJ yesterday that listed the carbon footprint of different products? A six pack of beer was one of the 6 products featured in the header of the story, and had by far the lowest carbon footprint. I'm not a drunk, I'm green

I did see that article and am proud of my contribution to a greener globe by drinking beer.

[Xpectations]

Another 500 point (5%) drop today...where and when is the bottom?

Interestingly, the bottom probably won't happen (and wouldn't have happened) without the lifting of the ban on shorting. Huge short squeezes usually mark that bottom, which is set up by massive capitulation prior to that (e.g., 90% downside days ... 90% of issues being down on the day, and 90% of the volume being negative).

GEEK NOTE: If you're interested in one of the great papers on this phenomenon (90% downside days capitulation followed by 90% upside reversal), read Lowry's research (http://www.lowrysreports.com/samples/90.pdf)that won the Charles Dow Award.

[boozehound]

Damn. This thread got complicated. I thought that I had a pretty decent understanding of economics but some of you guys put me to shame. Very interesting stuff though.

I was kind of surprised to see the Dow drop again so much. It goes to show that the bailout didn't revive consumer confidence to the degree that the government had hoped. I wonder if it is a lack of faith in the government, or lack of faith in market.

Things are looking rough overseas as well. THe only bright side to the global downturn is that we may (hopefully) see a drop in price of some key commodities that could ease the burden on the consumer somewhat.

[MADXSTER]

Okay so what's the deal with oil? Coincidence??

Election year? Stock market plunges and oil prices goes down? Refineries are up and running again?

Why do I have a feeling that if the economy was doing okay that gas prices would still be at their all time highs.

Hmmmm......

Thoughts please....

[XU05and07]

Okay so what's the deal with oil? Coincidence??

Election year? Stock market plunges and oil prices goes down? Refineries are up and running again?

Why do I have a feeling that if the economy was doing okay that gas prices would still be at their all time highs.

Hmmmm......

Thoughts please....

One...refineries are running again (take about a week after a storm to be inspected and get up and running to full potential)

Two...futures are down

Three...election year

Four...lower demand (people are driving less)

[boozehound]

Okay so what's the deal with oil? Coincidence??

Election year? Stock market plunges and oil prices goes down? Refineries are up and running again?

Why do I have a feeling that if the economy was doing okay that gas prices would still be at their all time highs.

Hmmmm......

Thoughts please....

I think that we are seeing a bearish view on oil futures as a result of all the global economic uncertainty. Demand has slowed domestically, and the events in the global economy suggest that we are not the only ones facing hard times. People all over the world will be trying to cut back.

Production of manufactured goods may also slow, and since oil is used in the production of most products in some way, slowed production would lead to lower demand as well.

Overall I see it as a drop in anticipated demand leading to lower prices.

[dc_x]

Okay so what's the deal with oil? Coincidence??

Election year? Stock market plunges and oil prices goes down? Refineries are up and running again?

Why do I have a feeling that if the economy was doing okay that gas prices would still be at their all time highs.

Hmmmm......

Thoughts please....

Speculators!!!!

Oh wait, I meant supply and demand. We only blame speculators on the way up.

[XUglow]

Speculators!!!!

Oh wait, I meant supply and demand. We only blame speculators on the way up.

I was watching CNBC this morning. The Dow futures were way down, and oil was down around $3 per barrel. When they announced the Fed rate cut, the Dow futures started up, and low and behold, oil futures started to rise as well. There was no sudden burst in demand or sudden drop in supply. Oil is a commodity that is program traded like any other investment. There are certainly supply and demand issues in the world regarding petroleum, but there was nothing going on that merited oil shooting up to $147 per barrel.

[GoMuskies]

The rate cuts lead to inflation fears. Thus commodity price increases.

Anyway, everyone knows that speculators always drive the price of commodities up and the price of stocks down. They're obviously evil.

[Xpectations]

The problem is believing that near- and intermediate term price moves in any market are driven by fundamentals, and that those fundamentals perfectly justify the current price -- and as such, valuation -- of the asset, whether that asset is oil, stocks, treasuries, houses etc.

Anyone who believed that world demand and fundamentals justified crude prices rising by roughly 2.5x over a very brief period were wrong. Just like anyone who believed that demand and fundamentals justified Internet (and overall) stock prices in the late 1990s was wrong.

There is no justification for price moves of that speed and magnitude.

That is also why the resulting price decline frequently overshoots by roughly an equal and opposite reaction on the downside when a bubble bursts. A good example of that was the stock market decline that began in '29 and ended a second standard deviation (for non-stat geeks, that's a LOT) from fair value in '32.

An example of when it didn't happen was in the bear market of '00-'02, when we didn't overshoot at all despite a 50% decline in the S&P 500. We didn't even reach the mean valuation for stocks (i.e., we remained slightly overvalued).

Too often, people believe that "reversion to mean" simply means you move back to the average. It does mean that, but it usually doesn't happen right away because of the overshoot downwards.

[Xpectations]

I should add that I believe crude will very likely drop to $60/barrel before this correction move is over, and possibly lower than that.

[dc_x]

I was watching CNBC this morning. The Dow futures were way down, and oil was down around $3 per barrel. When they announced the Fed rate cut, the Dow futures started up, and low and behold, oil futures started to rise as well. There was no sudden burst in demand or sudden drop in supply. Oil is a commodity that is program traded like any other investment. There are certainly supply and demand issues in the world regarding petroleum, but there was nothing going on that merited oil shooting up to $147 per barrel.

I wasn't trying to explain the price moves. I was just making a general comment about the talking heads on this issue. 3 months ago when prices were going up all you heard was "blame the speculators". Now that oil prices are falling all you hear is "demand is decreasing".

It's similar to the stock prices of financial firms. When the stock prices were going up it was due to savvy management and good investments. When the stock prices began to fall it was due to evil short sellers.

[X-band '01]

I should add that I believe crude will very likely drop to $60/barrel before this correction move is over, and possibly lower than that.

To me, that's wishful thinking. Sooner or later OPEC will probably step in and announce that they will start to curb production if demand continues to plummet. As of this morning, oil is about $88 dollars a barrel and wholesale gas is about $2.06/gallon. It would be nice to see gas prices get under $3/gallon and maybe, MAYBE, fall to around $2.50-$2.60 per gallon.

October is never going to be confused for a peak driving season, but there is no justification that I can think of for prices to remain around $3.50/gallon at the pump now that refineries in the Gulf are returning to normal production after Gustav and Ike rolled through.

[dc_x]

The government is now considering injecting real capital into banks, likely in the form of preferred share investments. This is what the British are also doing.


An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

This official said all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has caused the biggest upheavals on Wall Street in seven decades and continues to roil global markets.

Supporters of this approach, such as Sen. Charles Schumer, D-N.Y., argue that injecting fresh capital into U.S. banks who want to participate in the program would be an effective way to bolster banks' balance sheets and get them to resume lending. Taxpayers would benefit because the government would receive an equity stake in the bank in return for providing the capital.

"This idea would, at a minimum, complement the administration's planned approach of buying up troubled assets and may prove to be the most promising tool of all in Secretary Paulson's kit," Schumer said in a statement.

A decision to inject capital directly into financial institutions in return for ownership stakes would be similar to a plan announced Wednesday by Britain.

http://biz.yahoo.com/ap/081009/meltdown_paulson.html

In terms of a quick fix for banks, this is the most powerful tool available to the Feds. Everything done to date (including the TARP) are primarily designed to provide liquidity. Banks are now swimming in liquidity, but what they really need is capital.

The question is whether banks would actually use the capital injection to increase lending? Or would they just bury it under a mattress?

[Raoul Duke]

The question is whether banks would actually use the capital injection to increase lending? Or would they just bury it under a mattress?

I guess this is more of a question than an answer, but does it really matter? Because I think that either way, a capital injection would have the effect of facilitating interbank lending and, thus, jumpstarting the market for short term lending. Right now one of the problems you have is a confidence crisis - which is caused in part by undercapitalization of banks.

So even if they bury it under a mattress, it still shows up on the balance sheet and will act to alleviate some of the risk of counterparties. I think the idea is that that, in and of itself, will help increase lending.

[XU05and07]

The government is now considering injecting real capital into banks, likely in the form of preferred share investments. This is what the British are also doing.



http://biz.yahoo.com/ap/081009/meltdown_paulson.html

In terms of a quick fix for banks, this is the most powerful tool available to the Feds. Everything done to date (including the TARP) are primarily designed to provide liquidity. Banks are now swimming in liquidity, but what they really need is capital.

The question is whether banks would actually use the capital injection to increase lending? Or would they just bury it under a mattress?

why would they increase their lending to people and companies that got them in this mess to begin with? If I were a banker right now, I would become extrememly strict in my lending policies. I might not be making a huge return on that, but it's better than the alternative

[MADXSTER]

why would they increase their lending to people and companies that got them in this mess to begin with? If I were a banker right now, I would become extrememly strict in my lending policies. I might not be making a huge return on that, but it's better than the alternative

The banks that have been doing things right all along are not going to change their practices too much. They may tweak things a little, but they're solid because of good business practices.


Also, if the oil prices have been going down due to less demand then why in the world isn't the traffic getting any better. I should be cruising to work, right?

[xu2006]

Well, the DOW is currently sitting at roughly 8,800...

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[muckem muckem]

Holy Balony. Empty the piggy bank and buy up. I hate Ford, but $2.29 a share?

[XU05and07]

I hear REM playing lightly in the background

[muckem muckem]

I hear REM playing lightly in the background

And I feel fine....

[Masterofreality]

Well, the DOW is currently sitting at roughly 8,800...

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Hey, Q.

Ever think that they'd name a financial "correction" after YOU!?!!

[wkrq59]

Sadly, MOR, I've had to live with that problem long before this current mess. And the damned cows are walking around saying "Eat mor chikn."
Couple that with Palin shooting from helicopters at not only moose but also black bears. She even vetoed a bill to have polar us declared an endangered species.
In her home or office where she had a campaign picture taken, she also had her arm draped over the ass of a grizzly rug strewn across the top of the couch on which she was seated.
All in all, MOR, these are trying times for us bears..." Oh, father, I want a fish." :D

[Strange Brew]

My advice to you is to drink heavily. Trust me, I'm Pre-Med :D

[Masterofreality]

In her home or office where she had a campaign picture taken, she also had her arm draped over the ass of a grizzly rug strewn across the top of the couch on which she was seated.


Can I be a rug for a day?

[bourbonman]

My advice to you is to drink heavily...

That's why some stocks are better than others.

[dc_x]

The broad indices are just now getting to historically normal valuations on a normalized earnings basis. It seems worse because of where we've been (i.e., way overvalued for years).

The S&P 500 reached valuations on a normalized basis in excess of 30x earnings in 2000. To put that in perspective, the highest valuations ever in market history prior to the 1990s were 21x in 1929 (and we know how that ended).

Even at the October, 2002 bottom, when the S&P 500 had been cut in half and rebounded for a 5-year bull market, valuations were still at over 15x earnings, which is greater than the historic average (13.5x) or the historic median (11x).

That's amazing when you think about it. Most bear market troughs end with valuations in the single digits and the 2000-2002 bear market -- which included a 50% drop -- still ended with valuations based on normalized earnings on the historically high side.

We have now seen multiple bubbles of massive scale burst (Internet stocks, broader stock market, housing, commodities), and only now have valuations crept back into "typical" territory historically speaking.

We have been on a massive consumption binge based on debt and credit. It will take some time to unwind but this will not result in the next Depression. It just feels that way after weeks like the last few.

I started to scale back into stocks today and I've been market neutral for a bit over 4 years.

Xpect - Here is a good article saying a lot of the same things as your post. This move in the market is essentially a reversion to the historical mean.

http://seekingalpha.com/article/99381-on-a-return-to-normalcy-dow-8-500?source=yahoo

[Xpectations]

dc_x, great find. Thanks for posting.

I completely agree with everything in that article.

[PM Thor]

I think it's funny that Bush called for "confidence" in the market and economy, and everything is still tumbling. The President, who no one has confidence in, is calling for confidence. Yeaaahhhhh. I think it would have been better if he would just shut the Hell up.