Saturday, March 07, 2009

>How far could the DOW fall?

Wall Street pundits howled last July when we said the Dow would plunge to 7200 — a 37% decline.

Now, with the Dow well BELOW 7200, the critics have fallen silent — and some are even mimicking our forecast that Dow 5000 is dead ahead.

Here’s why even that dire medium-term forecast is still just the beginning — why the Dow could ultimately fall to 3500 ... 2500 ... 1500 or even lower ...

And how you can USE this great bear market to pile up greater profits in less time than you may now believe possible ...

How far will the Dow fall? Where will it hit rock bottom?

If you’re not asking this question right now, you should be.

It is absolutely essential that you get the answer right — for two, compelling reasons:

If you’re wrong, every sucker rally in this bear market could have you buying at the wrong time, then getting your head handed to you as the crash resumes.

But if you get it right, not only can you make a bundle with contrarian investments all the way down ... you’ll also be primed to earn windfall profits at the real bottom — picking up great stocks for pennies on the dollar!

You probably know that the average Dow stock crashed 89% between 1929 and 1932. So the question now is ...

When future history books are written, will they
say that this crisis was less severe than the
Great Depression? About the same? Or WORSE?

Of course, anyone who tells you he knows precisely where the Dow will hit rock bottom is pulling your leg. But consider the evidence ...

Fact #1: Earnings declines are now worse than in America’s First Great Depression. Average earnings have plunged 61% year-over-year, much more than during the 1930s. In fact, the last time earnings declined more than 61% was 141 long years ago!

Fact #2: Consumer losses are worse as well. Last time around, the losses that triggered the depression were largely limited to stock market investors.

This time, the fact that the average NYSE stock has already wiped out HALF investors’ money is only the tip of the iceberg: The equity most folks count on as their #1 source of retirement savings has also been wiped out as our homes have lost a staggering $2.4 trillion of their value in a single year.

Fact #3: Debts are far larger. Like this crisis, the Great Depression was essentially a debt implosion. But in 1929, total debts represented no more than 170% of GDP. This time around, U.S. consumers are buried under a far larger mountain of mortgage debt, auto loan debt, credit card debt and other consumer debts. Result: Total debts are now close to 350% of GDP — TWO TIMES MORE!

Fact #4: Derivatives! The Office of the Comptroller of the Currency (OCC) reports that U.S. banks now hold a $176-trillion mountain of derivatives, many of which are extremely high risk. In 1929, these derivatives were virtually non-existent.

Fact #5: Giant failures. In the first 18 months of the 1929-32 bear market, there were many small and medium-sized bank failures. However, none were as massive or as dangerous as the giant failures we’ve experienced in the first 18 months of this giant bear market.

This time around, the failures (or bailouts) of giants like Bear Stearns, Lehman Brothers, Fannie and Freddie, Washington Mutual, and Wachovia dwarf anything seen in 1929. And even these large failures will be trumped several times over by the impending demise of Citigroup and AIG.

Fact #6: U.S. is a debtor nation! In 1929, the United States was a creditor nation, with substantial foreign reserves. Today, the U.S. is the world’s largest debtor nation, dependent on foreign lenders to keep it afloat. That means that there’s a definite limit to how much longer the U.S. government can continue to borrow to bail out failing institutions.

Fact #7: The economic collapse and debt crisis are far from over! Just this morning, for example, we learned that

* Home prices have plunged 18.5%.

* Sales of existing homes have fallen to the lowest level in twelve years.

* Sales of new homes cratered to an all-time record low.

* 697,000 American families lost a paycheck in February — a 25% increase from January’s abysmal figures.

BOTTOM LINE: This crisis is AT LEAST as severe as the Great Depression, and the decline in stocks could be as well. That means, you could make the case that it could ultimately drive the Dow to as low as 1500.

Martin D. Weiss, Ph.D.


Anonymous said...

Very useful information to the investors to take long position in good quality stocks when our market touch the final bottom. Could you please list out some quality stocks to buy at the lowest level.

Anonymous said...

i think this person martin can come rite in future abt his predictions.

Anonymous said...

Hi, Could anybody tell me what r the indicators to see for the end of the recession? What all indicators/signs/statistics have been followed in past to predict/realise the end of the recession in not only stock market but in economy is full?

Rajesh Purohit said...

use this chart to compare current crisis with earlier bear markets.

*DOW is representation of just 30 industries.

Rajesh Purohit

Anonymous said...

any hope for NSE on current month
will down more??

Anonymous said...

I can see a DOW 1500 on the horizon as all the major companies fail.

Anonymous said...

Parva Thakkar said...

Thanks Rajesh for the chart URL

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