Is This the Market Bottom?

The news isn't pretty: Earlier this week, the S&P 500 closed below 700 -- its lowest level since October 1996. Many former stalwarts are faring even worse: General Electric (NYSE: GE  ) hit an 18-year low yesterday. Bank of America (NYSE: BAC  ) hasn't traded at these levels in 25 years. Citigroup (NYSE: C  ) hit an all-time low of $0.97 at one point Thursday.

This hurts, there’s no doubt. And as we watch stocks fall to new lows day after day, it seems as if the market's slide will never end.

But while these sorts of apocalyptic figures make for exciting minute-by-minute updates on CNBC, they're not much use to you. They don't say anything about how stocks will behave in the future, which is what actually matters when you're deciding how to invest today. That's one reason investors always ask, "Is this the market bottom?"

Well, is it?
Opinions vary. Nouriel Roubini, one of the few economists who predicted this crisis, wrote a January piece masterfully titled "The Latest Bear Market Sucker's Rally Is Losing Its Steam as an Onslaught of Awful Macro and Earnings News Takes Its Toll," in which he predicted the S&P could fall as low as 500 -- more than 25% below where it stands right now.

But last fall, in a New York Times op-ed piece, superinvestor Warren Buffett compared today's overwhelming pessimism to 1932, 1942, and the 1980s -- all fantastic times to buy stocks. Lately he's been adding shares of Burlington Northern (NYSE: BNI  ) and Ingersoll-Rand (NYSE: IR  ) . Although Buffett doesn't try to time market bottoms, his urge to "be fearful when others are greedy, and be greedy when others are fearful" has helped him to make eerily prescient moves in the past.

When he says it's time to buy, it pays to listen.

One approach to answering the question
My colleague Morgan Housel wrote an excellent piece examining historical market valuations. The one-sentence summary is as follows: When things get scary, investors frantically sell stocks down to incredibly low multiples.

Using historical data from Standard & Poor's, my research shows that the average of the lowest quarter-end price-to-earnings ratio (P/E) during all recessions since 1937 is 11.7. With the S&P trading at 11.9 times earnings, we've about hit that point.

However, looking at some of the lowest recession P/Es since 1937 also shows that if corporate earnings stay depressed, stocks could fall even further:

Recession

Lowest End-of-Quarter P/E

Today

11.9

January 1980 - July 1980

6.7

November 1973 - March 1975

7.0

November 1948 - October 1949

5.9

Sources: National Bureau of Economic Research, Standard & Poor's, and The Wall Street Journal

Applying these multiples to the S&P today means that the bottom could be anywhere between here and another 50% decline.

But what if the economy gets really bad?

Another Great Depression?
With comparisons between the Great Depression and the Great Wipeout of 2008 growing ever louder, a simple worst-case approach is to look at how Depression investors fared.

According to the National Bureau of Economic Research, we're 14 months into this recession, and thus far, the S&P 500 index has lost 52%. Fourteen months into the Great Depression (January 1931), investors were down only 46%.

But while the stock market was hit harder in 2008, economic conditions were far uglier in 1930. Back then GDP had fallen 8.6%, unemployment reached 8.9%, and deflation was running 6%. Our 6.2% GDP decline, 8.1% unemployment rate, and likely deflation almost appear mild compared to 1930.

So relative to 1931, if stocks today have been hit harder on less-dire economic news, does that mean we've already seen the bottom?

Not necessarily.

Even though stocks had already fallen dramatically since the October 1929 market crash, investors who bought in January 1931 were down another 71% by May 1932. This goes to show how difficult it is to time market bottoms, and it demonstrates that even though stocks have fallen considerably, they could still fall even more.

That's actually not so bad …
The good news is that it doesn't much matter whether you accurately time the bottom.

See, conventional wisdom holds that the Depression was a bad time to be an investor. Excitable market commentators like to cite the statistic that it took until 1954 -- 25 years! -- for the market to return to its 1929 levels.

That figure is true, but misleading. It assumes that investors put all of their money into stocks just before the market crash, stopped purchasing stocks thereafter, and never collected dividends.

Remember, we're now 14 months into this recession -- not at its starting point. So for the sake of symmetry, let's ask how long it actually took new money invested 14 months into the Depression (January 1931) to break even. According to number-crunching I've done using rare Ibbotson Associates data, the answer is less than five years. And an investor who continued to purchase stocks on a monthly basis would have broken even in little more than two years.

Take a look at how investors who bought stocks in 1931 fared after completely missing the bottom during the worst economic period of the 20th century:

Returns

T-Bill Investment

Stock Investment

1-Year

2%

(43%)

3-Year

4%

(23%)

5-Year

5%

12%

Through Depression (June 1938)

6%

10%

Through October 1954

18%

678%

Sources: Ibbotson Associates, National Bureau of Economic Research, and author's calculations. According to NBER, the second 1930s recession ended in June 1938. Assumes reinvested dividends.

The Foolish bottom line
So, then, how can we use this data? There are three applications for investing today:

1. It's very difficult to time the market bottom. Just because stocks have fallen and valuations are low, does not mean they can't fall further. So if you're going to need the money in the next five years, there are safer places for it than stocks.

2. Market timing isn't necessary to achieve great returns. The Depression was a terrible time to be a speculator. But long-term investors who continued buying stocks did just fine.

3. Stick to a proven stock-buying strategy. As I mentioned before, Warren Buffett built his more than $50 billion fortune in large part by purchasing stable businesses in strong competitive positions -- at discount prices. That's what led him to American Express (NYSE: AXP  ) in the 1960s, Washington Post in the early 1970s, and Coca-Cola (NYSE: KO  ) soon after the Black Monday 1987 crash. He didn't try to time markets; he just bought stocks when they were cheap.

And he says they're cheap again today.

If Buffett's investing approach makes sense to you, now's a great time to begin bargain-hunting. Like Buffett, our Inside Value team is amazed by the bargains we're finding today. If you'd like some help getting started, click here to try the service free for 30 days.

Ilan Moscovitz is greedy with chocolate cake and fearful of heights. He doesn't own shares of any companies mentioned in this article. The Motley Fool owns shares of American Express. Coca-Cola and American Express are Inside Value recommendations. The Fool's disclosure policy is overly aphoristic.


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Comments from our Foolish Readers

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  • Report this Comment On March 06, 2009, at 5:47 PM, titanicdwn wrote:

    I only agree that it may bob up and down a little. However, it will go much further down from where it is now. Obviously only one of us is right. Now, everyone place your bets.

  • Report this Comment On March 06, 2009, at 5:59 PM, kpmom wrote:

    I'm guessing when bac and c were in the 20's and teens last year, many thought they were "cheap", and we were at the "bottom". Of course things can go lower. Use whatever the market gives you, rather than trying to "time". Even Mr. Buffett can be wrong, as he proved by buying shares of conoco-phillips at its' peak last summer.

  • Report this Comment On March 06, 2009, at 6:19 PM, watchemfall wrote:

    At this point, if it is not the bottom, it is near enough but the trouble now is exactly HOW LONG the markets will STAY at the bottom, that's my worry.

  • Report this Comment On March 06, 2009, at 6:26 PM, TMFBreakerRob wrote:

    You wrote:

    "But while the stock market was hit harder in 2008, economic conditions were far uglier in 1930. Back then GDP had fallen 8.6%, unemployment reached 8.9%, and deflation was running 6%. Our 6.2% GDP decline, 8.1% unemployment rate, and likely deflation almost appear mild compared to 1930." I had to laugh. The drops in GDP and the unemployment numbers are not substantially different and those current numbers are highly likely to be revised to be worse. Only the deflation number is different and I question the importance of that, especially given the collapse in housing and other RE prices. And....in a parallel to the GD, we are still gathering downward momentum on a global scale. I think you're taking too much encouragement from this dive off the economic cliff...concluding its "not so bad" even though we clearly haven't hit bottom in terms of the economy. That being said, I won't argue your point that this could be a good time to buy....but I won't necessarily join in and say "Come on in! The water's fine!". I've been buying some lately and getting pounded for the pleasure. Waiting some more won't hurt methinks....

  • Report this Comment On March 06, 2009, at 6:26 PM, stan8331 wrote:

    This article makes an excellent point. If someone had stood up and said, in 1931, that the next few years would be the best time to invest in stocks in the history of the country - and would remain so 80-odd years later! - he would have probably been lynched.

    Stock markets are incredibly difficult to predict. Companies are not nearly so difficult. If a company is selling at a discount - low P/E ratio by historical standards, good cash flow, good management, low debt and significant advantages within its market, it's likely to eventually make you a lot of money. It doesn't really matter whether the explosive growth happens this year or five or ten years from now. If it takes longer, you just have a chance to buy more cheap shares in the meantime.

    As long as you diversify amongst a number of good companies to cushion against any company-specific unforeseen negative events, have an extended time-horizon and avoid panic selling even when things look bleak, you'll do well. Or the earth gets hit by one of those asteroids and we go back to the stone age. :-)

    But if civilization does come to an end, one can't actually EAT cash anyway...

  • Report this Comment On March 06, 2009, at 6:34 PM, pcm62 wrote:

    Why would you guys put out a buy recomendation on Microsoft and now have an article that says the company and Gates are going down. Which is it, do you recommend to hold it or get out?

  • Report this Comment On March 06, 2009, at 6:34 PM, CIGA wrote:

    I think most people really haven't grasped the enormity of the current situation. Things will never be the same again and the only honest thing to admit is no one knows how this is going to turn out.

    One of the stupidest things I've heard about the bottom was from the CNN guy Ali Velshi -- he said that we are closer to the bottom now than when the DOW was at 9,000. Thanks.

    Anyway -- I think we should all watch CNBC for financial advice. Check out this clip (note -- it's 'R' rated so probably not good for work or with kids around)

    http://dealbreaker.com/2009/03/cc-box-ahover-cc-homebackgrou...

    or if you live in Canada this one:

    http://watch.thecomedynetwork.ca/#clip145169

  • Report this Comment On March 06, 2009, at 6:53 PM, labman106 wrote:

    It seems that everyone with a post graduated degree

    is trying to make a name for themselves by making

    predictions of economic collapse. If someone made

    an S&P prediction of 500 twelve months ago ,what would

    we conclude? Insanity! No one would have had the data

    12 months ago to make such a prediction.

    It would be more beneficial if 'educated talking heads'

    spent more time on predicting which companies are

    going to lead the way out of this deep recession. That

    could start a stampede on the floor of the stock exchange to be first to buy shares which just perhaps might be the event that ends this recession. Eventually far too many talking heads make one too many predictions that ends up destroying their credibility. I select IBM as a catalyst.

  • Report this Comment On March 06, 2009, at 6:58 PM, dibble905 wrote:

    Perhaps an interesting comparison would be what the economists were forecasting back at the beginning of the great depression. How long were they expecting the contraction to continue? When was growth suppose to return? What was the expected peak unemployment rate? How far off were they? How is that in comparison to today's forecasts and how far off they are between actual results?

  • Report this Comment On March 06, 2009, at 7:04 PM, justputt2 wrote:

    Both of the above comments are equally good guesses. Until the massive quantities of CDS and BMS are brought in HONEST clarity, there will not be a bottom,,, simply because there can be NO TRUST in the market. Even though the 'black hole' is mainly in the financial market, it spreads it's toxic spirit into every aspect of the world's markets. We could use a young Prosecuting Attorney Morganthau, to start cleaning out the fraud, and cleanse the system.

  • Report this Comment On March 06, 2009, at 7:10 PM, OklaBoston wrote:

    One needs to remember that financially sound stocks consistently bottom out before financially unsound stocks. Mr. Buffett may not try to time markets, but good markets or bad he pays little or no attention to financially unsound stocks, which I think is a bigger part of the reason for his success than even he himself realizes. The same could be said for his refusal to get involved in the IPO manias that too often characterize market tops. When was the last time he bought ANYTHING that had been public less than a year? If you can correctly answer that question you're one up on me.

  • Report this Comment On March 06, 2009, at 8:32 PM, Darwood11 wrote:

    So, using history and your table as my guide, I could get >600% return, but I would have to wait >20 years to get there. That's long term investing!

  • Report this Comment On March 06, 2009, at 8:52 PM, GaryCCB wrote:

    The fact that we are in such turbulent times tells me to keep my powder dry for a while longer. My strategy is a very well diversified portfolio across all spectrums (global geographic, mutiple broad sectors, large to micro caps, industrial to comsumer/service, etc.) and place, perhaps, 25% of my investable cash after a 10 to 20% broad growth.

    My stops served me well last Fall and I exited rather quickly. (Deep sigh... (;o)

    But I will surely miss the full impact of a long-term growth trend. But I will also miss some very choppy corrections that are sure to come over the next 6 - 12 months. I doubt I will be fully invested for years...

    Buffett sustained unacceptable injury to his portfolio, IMO. He is back where he was 10 years ago. Even great companies are dangerous right now...

  • Report this Comment On March 06, 2009, at 9:01 PM, scottgeiger wrote:

    It seems everyone keeps asking, like kids on a long road trip, "are we there yet!?" And this has been a particularly difficult trip. The thing about a bottom is that you only know where the bottom is (or was) when you start climbing back up the other side. So if you're trying to time the bottom you'll just drive yourself insane. If you keep a consistent and steady buying policy you will "buy into" the bottom or very close to it. The other big key is diversification. That doesn't mean just buying stocks of different companies, you must diversify industries and sectors. Of course this does assume you have a long term investment horizon (i.e > 7 - 10 years).

    Now on the other hand, if you don't have faith in the markets, then you might want to think about stocking up on guns, ammo and canned foods (don't forget the manual can opener). Or maybe stan8331 is right and one of those asteroids will hit the Earth and this will all be pointless anyway.

  • Report this Comment On March 06, 2009, at 9:08 PM, xetn wrote:

    You roll those statistics off your tongue like they are some kind of law of stocks. What ever happened to the phrase "past performance does not guarantee future performance"? Just because something happened in 1930's does not mean that it is applicable to today environment. I don't trust the American economy at this point, there is too much government intervention, too much spending for non-productive (an oxymoron, because nothing the government does is productive) processes, and too much money being spent trying to breath life into dead enterprises. Socialism does not breed a good stock market, because it bleeds money out of productive enterprise, the places that produce real goods and services. And that is where the real value of stocks are derived. Just my opinion.

  • Report this Comment On March 06, 2009, at 9:16 PM, orofnap wrote:

    Nouriel Roubini should not be hailed as a genius because he predicted the present problem. i bought a house ten years ago. two years ago i sold it at a price that i could not afford. its tangible worth wasn't any different. it still had two bathrooms, three bedrooms and a yard, but it sold for triple the amount of what it was bought for. my wages did not triple. the math is not difficult. Nouriel Roubini made deductions my six year old nephew can make. take an effing bow. in 1929 a third rate power like north korea could actually scare someone. in 2009 third rate powers rattle their sabers and the u.s. anchors the sixth fleet off their shores. the world is totally different.

  • Report this Comment On March 06, 2009, at 9:45 PM, ReillyDiefenbach wrote:

    "Socialism does not breed a good stock market."

    Good thing we have that socialist highway system so you can get to work.

  • Report this Comment On March 06, 2009, at 10:05 PM, GaryCCB wrote:

    Say what? Socialism built our highways? Eisenhower was a socialist? I thought capitalism built this country. I thought all socialists societies have failed over the long term. Gee, I guess my study of American history was flawed...

  • Report this Comment On March 07, 2009, at 1:25 AM, dividendgrowth wrote:

    Actually, there was no P/E in 1932.

    American businesses as a whole lost money that year.

    That was the best time to buy stocks, ever.

  • Report this Comment On March 07, 2009, at 8:02 AM, otto32848 wrote:

    The socialist highway system comment refers to the fact that though the work is performed by private contractors the projects themselves are government funded. It's a logical but somewhat flawed argument in that the profit motive remains in play for those contractors. They'll cut every corner they can which is why we have government inspectors. What you won't see is a bunch of guys standing around leaning on their shovels because, for the contractor, time really is money. Contrast that with a state or municipal detail doing patch work or street cleaning. There's a world of difference.

  • Report this Comment On March 07, 2009, at 9:34 AM, thewinkshow wrote:

    JJB Sports shares are very low, and expected tot fly in the next few weeks

  • Report this Comment On March 07, 2009, at 9:49 AM, ReillyDiefenbach wrote:

    "Contrast that with a state or municipal detail doing patch work or street cleaning. There's a world of difference"

    In my state and municipality, the men and women who maintain the roads work hard and provide excellent service, all at no additional markup.

    Perhaps one of you armchair gurus would care to tell one of them personally how lazy and inefficient they are?

  • Report this Comment On March 07, 2009, at 10:22 AM, redryder420 wrote:

    The bailouts have Got to stop..AIG on its forth??? Time to retire..sorry AIG you had a good run. I would hope banks NEVER become nationilized...then I'd like to see how socialist the US has become..I think Obama is pouring money into failing banks because HE knows the govt can control them---does notice the more he talks the lower the market goes?????????????

  • Report this Comment On March 07, 2009, at 10:25 AM, maiday2000 wrote:

    The difference between 1980 and 2009 - Ronald Reagan versus Barack Obama. I think I will stay on the sidelines for a bit longer...

  • Report this Comment On March 07, 2009, at 10:44 AM, dfrndez wrote:

    The S&P had the P/E at 25 by the end of February, I don't know how it increased from nearly 17 to 25 with the slashing prices since the end of January. Most of the quarter 4 earning results were already accounted for in the January 2009 end of month P/E I would assume. An 11.7 P/E seems unreasonably low regardless though.

    If you believe that the market is here or close enough (I personally do) it would be advantageous to shore up on high beta growth stocks, and traditionally the companies emerging strong after a recession are those that were most severely impacted during the previous recession - tech stocks. The Nasdaq has been fairly resilient and is only beginning to set new lows from its previous low.

  • Report this Comment On March 07, 2009, at 10:45 AM, javaharv1 wrote:

    Making predictions is a fools game. There are hundreds of predictors and when one of them is right - only in hindsight - the press quotes him or her and they are now a genius and we will now listen to them.

    If you have been around awhile you know that no one knows anything for sure except for one thing and that is no one knows anything for sure.

  • Report this Comment On March 07, 2009, at 11:03 AM, javaharv1 wrote:

    If you study the market you will observe that the market has only gone down no more than three years twice (so far). Oct 1929 -Aug '32 (32 mos approx) and Mar 2000- Jan 2003.(33 mons approx) That is before it started to recover. This recession so far is the worst since '29. What is going to be different this time around? How often have we heard, "things are different now"? This time the consumer will not be back as before, for at least a good long time. That is not hard to predict considering the debt load of the consumer versus the need to save more. But do recognize that we Americans love to shop.

    As for government spending in lieu of consumer spending, one can be partisan on that issue but there are a few fact that some like to ignore: Expenses versus capital investments. That is infrastructure, education, and health care can increase productivity, i.e. capital investment. I know some people don't like to recognize that military spending outside of wages tend to be a costly expense - non productive - no economic benefit.(please do not argue that weapons manufacturing creates job and therefore is an economic benefit - if you believe that go back to your econ 101 studies.) But of course we need to defend ourselves against real enemies, but that does not take all the money that is spent in the military budget.

    So, the government is going to spend us out of this mess and most of us are hopeful that it will succeed. If not it may be the end of this once great nation.

  • Report this Comment On March 07, 2009, at 11:04 AM, sails2 wrote:

    The real question is "Is anything different now from the situation which existed in the past which would lead to a whole new paradigm?" I suggest there are some things to consider:

    We now have unregulated derivative trading.

    We now have ultra-short ETF's which allow too many speculators to gang up on and short stocks (financials, GE whatever).

    The banking and finance system is way too complex and the incentives in it are tilted to maximize gain for the players rather than anyone who builds, sells, or uses something.

    Financial institutions do not hold any responsibility for the esoteric products they create. What would happen if banks who made home loans had to keep mayby 5% of the loan on their books? Would lending standards change? Would the quality of loans change?

    The communication of either good or bad is way to fast and maybe not well enough understood with CNBC becoming a sort of financial Rush Limbaugh.

    The next question is "Should or Can anything be done about any of this or should the majority of us just lie back and take it?"

  • Report this Comment On March 07, 2009, at 1:11 PM, investusgregory wrote:

    Warren Buffet has been telling people to buy since the Dow was in the mid 9000's. As you know he has lost 10 billion dollars on his portfolio in past 12 months so I wonder whether it is still appropriate to cite the "oracle" albeit with your cautious disclaimer..

    We all know that the destruction of value in the markets has been enormous but in the long term this is good as the price liquidity of shares increases proportionately to the rise or fall of stocks. What this means is that the more stocks are "ramped up" by traders and company marketing the lesser the price liquidity is. The more stocks fall the greater the price liquidity and therefore true value of stock is revealed.

    I believe that the Dow at 4000 would enable complete liquidity at price for stocks. Investors , on the other hand, are likely to provide major support at around 5800 keeping stocks marginally inflated.

  • Report this Comment On March 07, 2009, at 2:25 PM, rubenkincaid wrote:

    Nobody knows where the bottom is in this climate, but I don't think we've hit it yet. I don't think 4500 / 550 is unimaginable.

    After losing 30% (300K) since labor day, I've pulled out of the market. It's not worth losing sleep over, and I'd rather watch from the sidelines. Even if it does bounce back soon, I'll never see returns as great as my losses over a similar amount of time. I'll invest again as it returns, but I don't want to ride it to the bottom.

  • Report this Comment On March 07, 2009, at 4:51 PM, MarkD wrote:

    Of course, you have forgotten one thing. We have an incompetent president in the White House who understands nothing about how to grow an economy and who is trying to radically change this country for the worse. Until competency returns to the White House, this market will have no confidence.

    Mark Dias

    http://mark24609.blogspot.com/

    "If I had followed CNBC's advice, I'd have a million dollars today provided I'd started with $100 million" Jon Steward, The Daily Show

  • Report this Comment On March 07, 2009, at 6:19 PM, TMcNasty wrote:

    Buy low sell high right?

    Could now be a great time to buy? Maybe.

    Could the market go up? Maybe.

    Could the market move down further? Maybe.

    The bottom line is the market has been trending lower for a LONG TIME now. And our gov't. is doing unprecendented things to try and "fix" it. The rules are changing daily. That is creating confusion. And on top of that unemployment is still staggering, oil demand is low, and a whole host of things are still saying we could be heading down more.

    If you ask me the market will bull again, but it won't be like '87...a blip. This cluster-F could take awhile to sort. Look how long it's taken already?

    I'd say now is a good time to SAVE some money and PREPARE to invest when the market stabilizes at least. There's no reason to jump in unless you're realy sure the market as a whole has reason to move upward. Does it?

    Markets dont lie. They moved down and are staying down for a good reasons. Until those reasons are sorted it's gonna stay flat or drop more. If those are my only 2 options I'll stay sidelined thanks. The only place I really saved $ is the 403b I have that has a guaranteed 5.5% return fund. THANK GOD I moved all my BS mutual fund junk into that last summer. I only lost $200!

    Let the ever optimistic out there try to snag GE, MSFT, BAC, etc. on the "cheap" only to lose more next week.

    Remember. NOT losing capital in a bear market ='s MAKING capital in a bull market.

    Why is that so hard for people to get? Even Buffett admitted he mighta jumped the gun last year. Guess what Warren. You're right...you did. You have no shortage of $...why did you feel you needed to try and scoop up cheap stocks so quick? Serves him right.

    It's because no one realized the depth of the depravity in the financials. To be honest...I think there are more skeletons out there yet. I want them ALL out in the open before I buy anything other than the most defensive dividend paying stocks like maybe WMT, MO, and KO.

  • Report this Comment On March 07, 2009, at 6:25 PM, TMcNasty wrote:

    Furthermore...

    The gov't. may provide just enough life support to banks and "troubled" homeowners to keep them limping along. So banks will remain reluctant to loan and homeowners just getting by will only buy the basics. Sounds like the makings of a Japanese lost decade to me. Everyone just getting by.

    Then the slightly better off among us get to try to pay this deficit off over the next x years. Limping along does not equal some wild bull market you'll wake up one day to have missed.

    To fix this debacle we need a REAL day of reckoning for banks, homeowners, and everyone else. I wonder how much of our last bull market was people taking out home equity to buy stocks. Do you think those millions of people can afford to do that again?

    Think people!

  • Report this Comment On March 07, 2009, at 10:55 PM, ReillyDiefenbach wrote:

    "We have an incompetent president "

    Had an incompetent president, you meant.

  • Report this Comment On March 08, 2009, at 5:27 PM, clevelandrudge wrote:

    We may not know when this market will hit a bottom. We do, however, know one thing for sure: this nation hit a bottom with the Bush administration. It will take us many, many years to climb out of the hole he and his accomplices put us in.

    Anyone inclined to criticize President Obama after only six weeks in office needs to remember one thing: our country has been traumatized during the past eight years by a dysfunctional and abusive "father" who has only recently been kicked out of the house. It will take us until the end of Obama's first term for our economy and our collective psyches to recover. His economic policies will be working by then and he'll easily be re-elected.

    The crybabies on the right better get used to it.

  • Report this Comment On March 08, 2009, at 7:54 PM, NotCrazy wrote:

    I don't know if we're at a market bototm, and frankly, neither do you. We can't know, so long as we're mere mortals without the gift of prophecy. But what we do know is that we're a lot closer to whatever the market's bottom will ultimately turn out to be than we were a few months ago, and that now is therefore a better time to invest.

    Of course, that's assuming that this is not actually the end of the world. If it is, would the last one to leave please turn out the lights?

  • Report this Comment On March 08, 2009, at 8:26 PM, SonicFoolAz wrote:

    Easily have another 30/40% to go. It takes time for everything to work through the system. The biggest single drops have likely already happened, however, the full impact of out of work wokers, credit debt defaults, and other general defaults hasn't quite worked it's way through the system. Many of the folks that lost their jobs are not yet experiencing financial stress. It's going to take time and a further slide before things can rebound.

  • Report this Comment On March 09, 2009, at 2:32 AM, biotech4ever wrote:

    For the record I'm an Independent. I was glad to finally see Bush go but there is nothing in the Obama administration giving me any confidence that the situation will get better. Bush doubled the national debt in 8 years and now Obama is on track to beat that in 3 years. In addition he's going to hurt small businesses and Geithner has no solid plan on how to rescue the banks. It makes me sad to think about the future.

    As Bernie Saunders said, "If companies are too big to fail, they are too big to exist" Yet are we doing anything to break AIG into smaller pieces? How about Citigroup? Bofa and Wells Fargo got bigger, what happens when they fail? The FDIC is asking for 500 billion loan from the treasury which for some odd reason is hardly getting much attention. Gee uh, 500 billion, so is Citi, Bofa and WF all going down?

    Then you have GE with 500-600 billion in debt obligations. Hartford will probably collapse this year with many other insurers to follow. We certainly can't afford to bail out all these companies.

    Worst of all, we are not only making the same exact mistakes as during the Great Depression but we have thrown away two pieces of legislation that came from that time, that being the Glass-Steagall act and the uptick rule. On top of that we have something the Great Depression didn't have and that is all these unbelievably complex derivatives that makes everyone's head hurt just trying to make sense out of them.

    There is no end in sight to the bad news so a DOW 4000 would not surprise me in the least. Also sobering is that even with the huge decline from the 2007 peak the PE ratio is now about 14, but recessions in the past it's been as low as 6-7.

    Don't get suckered into the rallies. Wait for conditions to improve(which may be a long long time) before getting back in. SpecBear has a great post about market timing in the Great Depression. I quote from his post

    "In fact, if you were just two months early getting into the market, you were worse off than someone who got in 9 months late."

    Preserve your capital, pay off debts. Wait for the banking mess to sort itself out first, assuming it ever does.

  • Report this Comment On March 09, 2009, at 9:17 AM, nilshp wrote:

    And another strategy is trying to recover some $ by trading (vs. investing) actively during the incredible volatility as we lurch between slump and rally... An action born of desperation - maybe so!

  • Report this Comment On March 09, 2009, at 1:37 PM, RML1 wrote:

    I strongly feel that one of the tragedies of this decline is the removal of the uptick rule. Shorts can now go totally nuts and generate gains on an hourly basis. The talking heads spout doom and gloom playing perfectly into the Shorts hands. The uptick rule served a very important function. Let's have it back to bring some sanity into the trading floor.

  • Report this Comment On March 09, 2009, at 3:33 PM, chrissmuir88 wrote:

    All this talk of bottoms never ceases to amaze me. How could ANYONE know if it is a bottom or not? I can understand why people would call it - after all, we all need a little hope - but there really isn't much of a basis to call anything at this point. All we do know is that momentum is clearly pointing downward, and sentiment is overwhelmingly negative.

    Chris Muir

    http://blog.invariant-capital.com

  • Report this Comment On March 10, 2009, at 7:32 PM, billmerrell wrote:

    clevelanddrudge said,

    "We may not know when this market will hit a bottom. We do, however, know one thing for sure: this nation hit a bottom with the Bush administration. It will take us many, many years to climb out of the hole he and his accomplices put us in.

    Anyone inclined to criticize President Obama after only six weeks in office needs to remember one thing: our country has been traumatized during the past eight years by a dysfunctional and abusive "father" who has only recently been kicked out of the house. It will take us until the end of Obama's first term for our economy and our collective psyches to recover. His economic policies will be working by then and he'll easily be re-elected.

    The crybabies on the right better get used to it."

    I will only say, 'What can be asserted without evidence, can be denied without comment' I do.

  • Report this Comment On March 10, 2009, at 9:03 PM, samniazi11 wrote:

    Systematic risk????? non of the " too big to fail " "premadonnas" baord member gives us details as how this systematic risk is going to ruin everybody??? other than the powerful few...

    No body dares to question the big banks!!!!

    Let them fail no matter what and let the government print tons of money and cover those of us in the middle class that lost their life savings...!

    Then, may be, we the "working stiffs" can invest in good companies and charter new clean banks that will actully use the money to stimulate rather than to plan a come back.

  • Report this Comment On March 11, 2009, at 8:44 AM, rababaijal wrote:

    i think the bottom to the mks is still sometime away...

    on simple pe terms mkt is still around 13-14x on core eps and there is both risk to earnings as well as pe compression ahead...even if we assume earnings estimate go right a pex of 10 should take s&p 500 to 500 levels within a few months in my view.....what happens next ?? i think we review then....since the problem with teh current times is that we are entering a new era with some learnings from the 30s but really not sure where we will end into in terms of financial markets and thus its best to stick to the sidelines and wait for stability in financial mkts to arrive and invest then without waiting for the economic bottom.....me thinks !!

  • Report this Comment On March 11, 2009, at 10:51 AM, FLA335 wrote:

    My venerable, long departed Grandfather, was highly successful in

    Stock market ventures and his wisdom has proven

    fortunate for me over the past three pull backs since the 50s. His best quote is:

    When it's really bad, hold out your hat and let them drop a few shares in and then--

    go back into the cave for a few years.

    Who knows what really bad means at this point,

    Nevertheless, a bite of the Elephant at a time should prove of conservative

    value over a period like this where several small

    bites seems appropriate over time.

  • Report this Comment On March 13, 2009, at 1:20 AM, Technicals wrote:

    This rally is over on Friday, Mar 12th!!! The S&P 500 is forming an intermediate term bottom on the daily chart. On the hourly chart, my analysis tells me we have one more low 3-5% down from the Friday, Mar 6th low. This low which will be coming in about two weeks and will be a catalyst for a nice size rally into the summer (4 or 5 months), then when the "experts" start announcing the recession over on CNBC it will be time to sell the stocks to all the buyers who listen to them. The market will then begin it's trek downward with a price acceleration we have not yet seen, the DJIA will hit 4000 +/- 500 points at the next stop and buying opportunity after this one. This is my trading strategy for the rest of the year. You can e-mail me at todavidbrown@gmail.com next week if you want my price targets and dates for this up coming new low, I will be doing some work this weekend to come up with them. Good luck everyone!

  • Report this Comment On March 13, 2009, at 11:14 AM, runwildtoo wrote:

    It is interesting to hear how comments may change from last Friday to today (Friday the 13th).

    Seems like it is pretty hard to predict the future since the market is based upon traders psyche and their perception of the future.

  • Report this Comment On March 13, 2009, at 1:22 PM, Idahojones wrote:

    You may ask "where is the bottom"?; I ask "where are the earnings and where are they going to come from"? It seems to me that just about everyone is missing the poit that the growth prior to this recession was fueled almost entirely with equity pulled out of houses, cheap loans, and credit card debt. Without the cash or credit to chase goods and services earnings are going to take a long time to recover. I think the bottom is somewhere around 4500. Forget about the technicrats and their charts and we see "support at this or that level". This is a different world and you can throw all that stuff out the window. Ninety percent of the last 12 years of growth has come from inflated housing and cheap credit and I believe like in the 70s it is going to take a long time to recover.Unemployment is going to rise to 10.5%-12.5%. At some time we will enter a period of high inflation...how else are we going to pay for the sins of the past present and near future?

  • Report this Comment On March 13, 2009, at 3:38 PM, edvale wrote:

    Lots of sensible comment on here, and some I will ignore. I can say I saw this all coming, and I'm safe...for now. It is the debt I think that counts - and was readily available in many places in July 2007. P/Es too could have told us. The macro point many miss is the US reliance on China providing its overdraft facility. $700bn owed. What if China says we'd like some back, to invest in commodities, local infrastructure, whatever. China will be the 2nd largest economy soon, and will remain there ONLY if it allows the largest one to remain overdrawn. But the stocks that invest in China (e.g.CocaCola) or those that live there (egChinamobile). Buy stuff that cannot be easily produced (unlike US$ bills) and is needed, eg zinc, copper, oil. Abandon all discretionary spending stocks. Have 50% in BRIC countries.

  • Report this Comment On March 13, 2009, at 4:20 PM, duckbowler wrote:

    I'm buying NOW. I have waited for a time like this for the last year or so. What the heck are you waiting for???? I'm only buying dividend paying stocks, though. I actually DO dabble a little in penny stocks on a flyer; like 5000 shares of a small silver mine in Nevada. DO IT.

  • Report this Comment On March 13, 2009, at 4:43 PM, freddyv3 wrote:

    "Recession Lowest End-of-Quarter P/E

    Today 11.9*

    January 1980 - July 1980 6.7

    November 1973 - March 1975 7.0

    November 1948 - October 1949 5.9"

    Actually the current P/E for the DJIA is 23

    http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mo...

    ...and the S&P 500 has a P/E of 40, based on the same methodology (reported earnings) used for the other recessions.

    http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.X...

    http://www2.standardandpoors.com/spf/pdf/index/Earnings%20Me...

    The misinformation needs to stop if we are to deal with the problems we have. The media leads the way in this but we too often pass along bad data in forums like these. Go to the source and check the data yourself and you will see that things are much worse than the media would have you believe.

  • Report this Comment On March 13, 2009, at 5:44 PM, dking77 wrote:

    The question about whether or not this is the bottom will be determined by what the economy does from here forward. If people continue to get laid off, if company earnings continue to stagnate or get lower, If people keep losing homes to foreclosure, if the GDP keeps dropping, then we havn't seen the bottom yet. Using the historically low P/E ratio might be indicate a bottom for what the current earnings are, but if the earnings drop, the P/E will either go up, or the prices will drop further to keep the P/E steady. And if companies like GM continue to lose money and have NO earnings, then the P/E wont be much help.

    I know of a couple of 'Murphy's Law' regarding stocks:

    You'll never get in on the bottom, and You'll never sell out at the top (at least not on purpose), because you won't know at the time if its the top or bottom.

    If you are not worried about the market dropping any further and can afford to let it drop or stagnate for a while, put your money in. If you don't have a portfolio or nest egg yet and want to start one, NOW is the time to start building it. A few bucks each week untill the economy starts to improve will go a long way. And if you don't want to lose any money, wait till the economic news starts to improve and the market begins to recover and then jump back in.

  • Report this Comment On March 13, 2009, at 5:46 PM, AriasPalm wrote:

    "The socialist highway system comment refers to . . . a bunch of guys standing around leaning on their shovels because, for the contractor, time really is money. Contrast that with a state or municipal detail doing patch work or street cleaning. There's a world of difference."

    Agreed, and my best friend's dad in Germany needed a bypass operation that is done routinely in the US but due to Germany's "free" health care upon which we are about to embark, he was told he was too old and they sent him home to die. This is the future under socialized health care.

  • Report this Comment On March 13, 2009, at 5:46 PM, TMFDiogenes wrote:

    Hi freddy,

    "Recession Lowest End-of-Quarter P/E

    Today 11.9*"

    Follow that star to the footnote just below the table, "*Based on 2009 earnings estimates."

    It wouldn't have made sense to use 2008 reported earnings that included hundreds of billions of dollars in write downs and were actually negative last quarter. I normally don't like to use forward earnings, but in this case they were more representative of the S&P's actual earnings power.

    Thanks for reading,

    Ilan

  • Report this Comment On March 13, 2009, at 5:47 PM, surgcare2169 wrote:

    Good work freddyv3 ,Good work .As regards the article its shamefull how the media tries to portray the economy as better than it really is . Its irresponsible for the meda to keep telling (the last 18 months ) that the low is in and this is the best opportunity to buy stocks . More people have lost money listening to this garbage .The fact is america is no way near the same country it was in 1930 .People were self reliant and willing to work for a living instead of expecting handouts .It can not be denied that the people of today expect someone, anyone to bail them out and solve their own problems. In 1930 americans made things , all kinds of things and they made them well .Today americans don't make anything because their too lazy to compete against the rest of the world. So comparing now to then (1930) is disgracefull in that its an insult to anyone who lived at that time .

  • Report this Comment On March 13, 2009, at 5:50 PM, skat5 wrote:

    The p/e is not a stable indicator because the e keeps shrinking. 1932 was not the 'best time to buy stocks, ever'. Even if you made money the tax rate was so severe you did not keep it. Arguably the best buy point was when personal computing entered the business world, improving productiviity, followed by the advent of the internet, up to the point the internet bubble popped. Of course, if you bought ATT instead of microsoft, intel, and dell, you would have lost money even then. Take a step back, look at the SP500 chart from 1950 to present. On such a chart, the crash of 1987 is a blip. The last 20 years make a double top with present price below the trough between the internet and housing/credit bubbles. Those that like technical analysis might place the coming bottom around 350, probably 6 months away. The good times are definitely over. Dividends of companies that have maintained or raised their dividends for many decades are no longer safe.

    It is unclear if big goverenment spending will result in a recovery or stagflation. It probably depends upon the return on that money, because if there is not a gain in capital or productivity, how can there be increased prosperity. That is why it is better, in the long run, to say, spend government money building an interstate highway system than say, foods stamps and expanded unemployement benefits. Too bad the government spending is not focusing more on payback. Good examples are computerizing and standardizing medical records, improving the electrical grid (which is almost laughable for a country as advanced as ours), energy efficiency, and energy independence.

  • Report this Comment On March 13, 2009, at 6:00 PM, AriasPalm wrote:

    "Anyone inclined to criticize President Obama after only six weeks in office needs to remember one thing: our country has been traumatized during the past eight years"

    I have no idea what country you are talking about, we came through 911 with the economy intact and a vicious enemy thwarted at every turn due to the President's solid leadership. President obama has spent more in two months than Bush did in his entire eight year service. None of us will live long enough to pay back this two month spending spree and our grandchildren will still be tethered to it their entire lives. This is what happens when you elect someone who has never run a business, never run a state and never even run a city. He promised no earmarks and by last count, there were 9000 earmarks.

  • Report this Comment On March 13, 2009, at 6:24 PM, paulstewart2 wrote:

    I think a big difference in comparing the Great Depression to now is that we now have a better idea of how to deal with it and we know what it is. Also, while the global nature is a negative, the response of the globe is positive and significant. Everyone is of the same mind and understanding. Humans, when united in effort, can do amazing things. I am confident they will find their confidence soon. This thing has bottomed. It is only a question of timing to revert to a stable and strong market. Maybe 6 months. In the meantime, volatility. Weakness in banks, just because there is so much uncertainty and bad news to come yet. But the economic recovery starts now. The banks are under written by all the governments. Some might get broken up but no one will lose their savings. Shareholders can get hurt of course. The stimulus and long term investments being made in infrastructure and things that matter for the future are all positive. I think in 2 years to 3 years, people will look back and understand not only did we relearn something important - invest in things you understand and keep your morals about you. But also, this has created a huge opportunity to change some fundamental mistakes in where America is investing.

  • Report this Comment On March 13, 2009, at 6:33 PM, WatcherAl wrote:

    Forget past history, investment theory, pontificating pundits and all wishful thinking - we have entered a new paradigm that is still emerging. When the consumer credit card crunch hits later this summer, the second great tailspin will resume. The US economic system is far more damaged than we are being told - the same accounting & legal firms that aided & abetted the likes of Enron have been fronting the whole derivatives debacle, so off the books debt is hidden all over the place, and, in the meantime, we have outsourced much of our real economy and replaced it with post-dotcom fluff. The bad news is coming out in dribs & drabs with enough time in between to manage FUD and reset the markets lower & lower without loosing utter panic. The road to recovery will be paved with experimental maneuvers: Federal stimulus spending, writing down trillions of debt, defending a wobbly US dollar currency, getting international cooperation on stricter banking rules & transparency, and moving from a debt-driven consumption propelled economy to a long-term sustainable one. Meanwhile, emerging export economies will have to learn to consume & spend, while China will have to learn to be a responsible global economic power - a tall order for a Communist controlled society that is tempted to do some power grabbing while Uncle Sam is in the ICU. So, do yourself a favor: invest in creating a more sustainable lifestyle for yourself that won't leave you overly dependent upon a vast chain of questionable players who may decide to yank your leash from time to time just to show you who is really in control. And if you really do want a better world for your grandchildren to live in, engage with this current administration and help them to do the right thing. You have an Ivy League A student in the Oval Office now, instead of that grade C sock puppet with the Bin Laden Family & Enron buddies, so he's probably much smarter than you are - help him to sort through all of the conflicting advice and find us a workable path out of this firestorm and onto safe ground once again. Take a few bucks down to your local soup kitchen or homeless shelter, and invest in your beleagured fellow citizens. Greed & perpetual self-interest are what piloted us onto the rocks - so isn't it time to try something else for a change? Get involved... care.

  • Report this Comment On March 13, 2009, at 6:35 PM, ellrod34 wrote:

    "He promised no earmarks and by last count, there were 9000 earmarks."

    I agree with this statement. Can any Obama supporter explain to me how the president can sign a bill in the privacy of his own office (whilst smoking a cigarette) and then proceed to announce to the public that "starting now" we will not tolerate excessive pork or earmarks. Doesn't that seem like a double standard?

  • Report this Comment On March 13, 2009, at 9:15 PM, baltimoregirl wrote:

    Why are earmarks so bad at this point when the major idea is to GET MONEY OUT THERE to employ people? These earmarks are for building projects and for conducting studies and for all kinds of things that keep money in people's pockets- like the stimulus bill.

    That said, I would like to see that this actually happens- ie that the fiscal transparency that stimulus spending requires is applied to all earmark spending.

    PS- and I agree that we are far from the market bottom. I don't think the East European bubbles have fully weighed into the global economy yet. Keep the cash in the mattress.

  • Report this Comment On March 13, 2009, at 9:32 PM, warrenzevon wrote:

    I make no claims to being an economist or experienced investor, but I'll say this. Unless the govt wants to keep throwing money at GM like a drunken sailor, it's gonna fail. Even with an add'l round of financing, I don't see how they can save themselves when they lost $30+billion last year and the industry as a whole is going to sink even lower this year. When GM fails, you can be damn sure the market is going to fall with it, even if only momentarily. For every investor who's already priced into his/her model the possible collapse of GM and Chrysler, there's 10 people with money in stock who know nothing and will be horror stricken and sell everything.

  • Report this Comment On March 13, 2009, at 11:54 PM, JUPEEE wrote:

    To you people who believe in the Saviour Obama:

    Keep this message in your minds for the next ? years.

    Bush started the debacle of not letting bad businesses fail so that we wouldn't feel the pain. Your saviour just made sure that you will never see recovery, your children will never know what freedom (real freedom) was , nor your grandchildren (maybe no one ever). The USA will not exist past a few more years(maybe whoever owns it will keep the name because it convinces people that they are free). Probably none of you REALLY knows what to expect with the coming socialistic debasement of the individual and the individual's entrepreneural ambition.

    It dies. More appropriately , it just died and you don't know it yet. If you think that none of this will affect you, who do you think will give you a job THAT YOU CAN MOVE UP WITH AND INCREASE YOUR WEALTH, THE GOVERNMENT?

    The socialist left have duped you. You've been played rather well. Change has happened. Hope is truly gone.

    As I said, keep this note to remind yourself that your vote has killed a decent society and doomed your posterity into probable communism.

    HOPE you enjoy the CHANGE.

  • Report this Comment On March 14, 2009, at 12:09 AM, JUPEEE wrote:

    Sorry, I did forget to add:

    In the future, I wouldn't let anyone know that I voted for him if I were you. It's gonna get dangerous in the coming world.

  • Report this Comment On March 14, 2009, at 2:13 AM, aviador747400 wrote:

    IMHO we are currently in a bear bounce and the DOW will reach anywhere from 8500-10000 in 2-4 months before it comes crashing down again to 4000-6000 levels. Remember that we are in a Global Depression and we will not recover until most likely next year and then it will be 5-10 years before the market gradually comes back. I'm long on Citigroup and bought a lot at $1.00. Good luck, fellas

  • Report this Comment On March 14, 2009, at 9:41 AM, MrChanceBanker wrote:

    I have been a Mortgage Banker for more than ten years. I have watched them kill the Goose that laid the Golden Egg by distroying the "HOUSING MARKET ". I sat back and said, Are you Kidding?

    At the time this was the only thing perpetuating the economy.

    My Firm refused to do Sub Prime Loans.

    I have had many of my Repeat Customers go to other Firms when we said, NO, not higher than 37%. They call me later and say, What can you do for me, I'm losing my house. Brother, when you went over 37% you lost your house! Greed!

    I always thought "No Doc" loans were wrong. It is an Outright Lie to say your makiing one thing when you are actually making another! The problem was compounded when so many people did it. So the old school thought of them only hurting themselves was incorrect. They helped pull everyone down!

    When someone has a 760 Median Credit score, has not been late on a Mortgage payment in 10 years, has 6 good lines of credit. Wants to refinance their Loan. It should take only two weeks to get that through, not 12 weeks! ????? Where is the logic in that!

    I resently tried to increase an equity line of credit on my primary residence to an additional $50,000 something I have done successfully twice before in the last seven years. 800 Median Credit score , excellent lines of credit. Never late on a mortgage payment on five investment proporties besides my primary residence which has over 400,000 in equity on It. There were two late credit cards payments on my name which my wife uses on two different credit cards. One was reported to the depositories incorrectly. It took me 2 months to get corrected and it held up a refi on one of the investment properties and nearly cost me $500.00 a month difference on a 20 year Mortgage. It finally got straightened out but because of the times and the mortgage market I almost missed it!

    I have resently had to turn down 6 different Clients which we have done mortgages with in the past three years. They did not have big deposits, most pay PMI also. Under normal circumstances these people would have been able to take advantage of refinancing and lowering their Mortgage. These are good hard woking people.They are the back bone of our economy.They pay their bills on time! Their home has decreased so much in value due to updated appraisorials and additional decreased flexiablity from the lending banks. They now can not refinance with any Credit Score. This is bad, it prevents good people from refinancing and unfortunately people like me from making a living!

    My point is this economy is putting unreasonably headaches on everyone. They should have let half of these Companies go down the tubes, and these Greedy, Arrogant Presidents of Companies all across America should be held Accountable!

    I only hope Obama's common sense attitudes puts the country back on its feet. Sooner, rather than later!

  • Report this Comment On March 14, 2009, at 12:11 PM, parisholiver wrote:

    Larry Burkett wrote about this in 1991, and even from the grave has some interesting things to say...

  • Report this Comment On March 14, 2009, at 3:07 PM, jfrankh57 wrote:

    Too many people look to a big government to bail this country out. Maybe the stop gap solution of creating jobs can help in the short term, but I think the jury is still out on that and the short term is on its way to becoming long term. Government and its bureaucracy has too many inefficiencies built into a system that gets more stratified and cumbersome the bigger it gets. Bush was a so-so Prez, but he really made a downturn when he started throwing money at those companies such as AIG and the investment banks to save the American public some pain. Why? The FDIC and sundry other insurance programs have been in place for decades to prevent the failures that occurred during the 1929-1932 period. With a number of banks going bad, we worry, but it is nowhere as bad as it could be without the support system in place for bank protection. Bush started this mess and Obama is accelerating a spending problem that will leave us broken for possibly multiple generations. They appear to have bypassed the protection scheme for banks and artificially propped up the worst of them with the worst management---worst meaning they didn't look out for their banks/companies, they were only, shortsightedly interested in the amount of money they could extract this quarter or that term and not looking at long term prosperity/survival. It is hard to believe the majority of CEO deserve what compensation they receive. Maybe we need to look at vesting them in their companies with programs tied to multi-year account held stock options or outright purchases. They couldn't take anything out of the account for a period of years so they would insure the company would be viable past their tenure. Something like this could possibly lead to good stewardship.

  • Report this Comment On March 14, 2009, at 3:39 PM, billposter44 wrote:

    Certainly the present administration is clueless as to solving the current depression. This is not a direct criticism of Obama - McCain was equally ignorant economically and probably wouldn't have done any better.

    The problem is that no government can ignore the strident calls from all quarters to fix things. Governments invariably try to fix problems by throwing money at them and inevitably end up making the situation worse.

    There is a distinction between a depression and a recession - the most important being that the so-called "economic stimulus" won't have any significant effect on a depression.

    What we are seeing now is a bear market rally. This was really triggered by the market being severely oversold and a glimmer of good news - Citi claiming a profit and GM claiming it didn't need immediate cash was sufficient to turn the tide. This rally may last for two weeks or two months - possibly even longer. But don't be fooled - the news will continue to be predominantly negative and some factor will trigger the next crash. It may be something small, like when unemployment inevitably hits double-digits later this year.

    I have no crystal ball to see what and when the bottom will be, but I'm very sure we are not there yet.

  • Report this Comment On March 14, 2009, at 4:00 PM, psychobox wrote:

    I think the average American has a hard time imagining what a billion dollars would look like let alone a trillion dollars. Would it fill my living room? What most of us recognize is that the "crisis" we are in signals less spending for all of us. It's too bad Obama doesn't see it that way. I guess the trillion might fill the rooms of the White House but I thought we were told to "spread the wealth with our neighbors" not spread it all over the floor of the congress and house of reps or the White House. Biden said it's partiotic to pay more taxes. Perhaps for the first time in history the President actually listens to the Vice President. In my very small investment group we meet, we research, we read, we go on line, we do the stock worksheets etc. We have come up with a great way to pick stocks. We do the work and then look at each other and say what do you think? It really doesn't matter in this economy, so lets go with what we like." PE goes out the window, history with it, and we choose. Of the 11 stocks we own we are still above the average market losses. We have had some real loosers but our average is holding.

    Have we hit the bottom? If we keep filling the ink wells on the money printing machines, we have not hit the bottom. I am looking at my back yard with a new vision of the old "victory garden." Perhaps a purchase of garden seed stock would be a good idea for all of us. tdc

  • Report this Comment On March 14, 2009, at 7:18 PM, JUPEEE wrote:

    MrChanceBanker, dude,

    where in the world did you get the idea that Obama (I refuse to call him a president) has ANY common sense at all.

    READ, please READ about how MOST economists, except those working FOR him, would fix this economy.

    It's not rocket science.

    His goal IS to destroy this nation.

    Keeping watching his moves and you will see.

  • Report this Comment On March 15, 2009, at 4:34 PM, POCONNOR29 wrote:

    As far as a jump start and spreading the wealth is concerned.what would the economy and the investment markets react to a 10% long term capital gains tax.Would jobs come on line, would the indicators rise,would the banks lend again would the fundamentals change? Obama is an A student, but why punish the investors let the private sector stimulate.

  • Report this Comment On March 15, 2009, at 6:22 PM, imsnilloc wrote:

    I just started reading these boards and find them very informative but also amusing. There are a lot of extreme scardy pants out there. During the 80's my father told me that we were in tough economic times and it was the perfect opportunity for a truck driver to invest. Unfortunately, he didn't and regretted it. He then told me that it would happen again, and when it did to be ready for it. I am. I have worked at, since the 80's, an education that was payed for as I went (it took a long time, one class here, two there, whatever I could afford.) I have no credit card debt. I bought cars to get me from point a to b and drove them into the ground (no interest loans or used.) I put money into a 401k (manufacturing job while in school) and then a 403b. I just bought a beautiful home that 3 years ago I would never have been able to afford and I plan on living in it till I retire or am dead, it is my dream home. I recently bought stock in companies that traded in the hundreds of dollars for a fraction of the cost. I'm looking into other investments. Now the final point, there is a huge demographic of people that are cautiously putting money into investments we could not have touched, buying homes, and starting businesses. A lot of us have been waiting for this drop so we can finally play the game. So go ahead all you Henny Penny's...while you're running around looking for the king to tell him the sky is falling I'm at a yard sale buying treasure.

  • Report this Comment On March 16, 2009, at 2:17 AM, bobs111 wrote:

    as long as we don't know what the federal government is going to do, the less likely anyone will be to invest. just like the 30's, only obama is alot more scary. i hope he is only stupid, but it could be that he knows exactly what he is doing. if so we are going to be living in very interesting times!

    bobs111

  • Report this Comment On March 16, 2009, at 9:28 AM, geohjr1 wrote:

    Need to verify the facts here, I belive the unemployment in 1930 was far in excess of 8.9%. I believe it was at least in the 20 to 30% range.

  • Report this Comment On March 16, 2009, at 9:30 AM, geohjr1 wrote:

    Well it actually was 8.9% in 1930, subsquently rose to 27% in 1933.

  • Report this Comment On March 17, 2009, at 8:24 AM, 1634dave wrote:

    We are not 14 months into a recession. A recession is 2 quarters of negative GDP which were the 3rd & 4th quartrer of 2008. (8mo) If we keep changing the rules as to what stuff means, then that same stuff gets skewed. Past recessions average 18mo, so therfore we have another 10 months to go +/- 2.8 standard deviations at the 90% confidence level. Take the hype and emotion out of investing!

  • Report this Comment On March 18, 2009, at 1:33 AM, TMFDiogenes wrote:

    geohjr1,

    Yep, according to the Bureau of Labor Statistics, unemployment really took off and kept climbing until 1933, when it hit 24.9%.

    Thankfully we're not there yet.

    http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm

    1634dave,

    As I wrote in the article, "According to the National Bureau of Economic Research, we're 14 months into this recession." The NBER defines recessions as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

    http://www.nber.org/cycles.html

    We do carefully fact check everything we publish.

    Thanks everyone for reading and for posting your comments,

    Ilan

  • Report this Comment On March 18, 2009, at 10:37 PM, Technicals wrote:

    I want to inform everyone that the new low on the S&P 500 I was expecting because the hourly chart did not complete a 5th wave bottom has been negated by a confirmed up trend on the daily chart today. The S&P 500 will not be making a new low anytime real soon. Today, the S&P 500 made it up to the 50 day moving, I will be buying the first pullback to the mid-range of the bollinger bands on the daily chart with a price target of the 200 day moving average. Be patient, do not chase this rally, wait and buy pullbacks and do not get suckered in at a high price only to see a major pullback a day later. Good luck everyone!!!

  • Report this Comment On March 18, 2009, at 10:58 PM, antipkin wrote:

    geohgjr1 is right. I've noticed this too - according to Wikipedia - "unemployment reached a record high of 29% in 1932".

  • Report this Comment On March 18, 2009, at 11:22 PM, TMFDiogenes wrote:

    That unemployment stat is from the section about Australia.

    Here are the BLS statistics for the US: http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm#37

  • Report this Comment On March 19, 2009, at 12:21 AM, easyrob wrote:

    I want to support WatcherAl in his well considered comment of 13 March.

    No one knows the bottom or how long this will go on, but I think we can agree it is a very serious situation.

    With that in mind it is frustrating to see ranting going on in postings here. Irrational pronouncements are symptomatic of how we get ourselves into economic predicaments like the one around all of us now.

    There is always hope, and there is always goodness, even in bad times. If we talk with each other rationally with the goal of cooperation, then we can find common ground to build our future economy into a more sane structure than what we have now. Let's always realize that there is no "one way" to accomplish our goals. By constantly arguing and wanting to be "right" we diminish our ability to analyze and effectively respond to the many challenges that face us in these times. We need to be able to change our thinking when the facts show us our assumptions were wrong.

    That said, I'm thinking this is going to be a fairly long recession, so am taking my time, getting back in very slowly.

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