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When 11400?
The date of the last Fab 15 post, just a little over a month ago on 9/3/08.

The drop? Approx 25% ( 2821 / 11400 )

How much of a gain to recoup our losses?

2821 / 8579 = approx 33%

I'm not expecting to recoup my losses anytime soon.
I'm thinking 2010 for a recovery.
Yes, I know that's terribly optimistic...

Larry
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Larry,

I'm not expecting to recoup my losses anytime soon.
I'm thinking 2010 for a recovery.
Yes, I know that's terribly optimistic...


It depends on how much damage is done to the economy by the credit crisis. It remains to be seen how much of the weakness in the macro economy is due to the credit crisis and how much is due to the hurricane that put southern Texas out of business for at least a week. I think that the hurricane was the bigger factor because the credit crisis didnt start affecting money market accounts until a week or so ago.

The sell off in the stock market has been across the board, even though the problems are mostly in the financials and auto sectors (MBS and gas). The sell off is across the board because, as someone put it recently, the clerks on the margin call desk don't care about valuations.

The stock market crash in 2000 was due to a recession caused by deflation. (The Fed had kept interest rates too high for too long.) Earnings estimates were revised done for the next several quarters and stock prices followed. It wasn't until Oct02 that earnings and stock prices bottomed and the market recovered.

The problem today is much different. The stock market crashed because of problems in one sector. This problem has caused a decline in the velocity of money as people are hesitant to lend money in this environment. It's not clear how long this problem will persist and how bad the problem is, but it is clear that the media is exagerating the problem. The media says that the the market for commercial paper has seized up, but Bloomberg said it shrunk by 3% last week. That's severe, but it indicates that some people are getting loans.

I think the malaise will continue for another few weeks because some hedge funds are going to liquidate because of this market. Once the selling pressure is exhausted, non-financial and non-auto sectors will have huge rallies. 2009 should be a great year for stock.

Jim
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I gave Jim a rec because I agree with much of his well-thought-out post. But I do disagree that the market will rebound in 2009 -- or perhaps I should say "rebound quickly".

Out on the CNBC website there are two articles "Today is the bottom", and "No one knows when the bottom will be" (Those are not the exact titles, but you get the idea about the uncertainty)

If only America was having economic problems, I'd say we could solve it by 2009 and move on upward. But this is a global biggie, and we may be the leader downward in an increasingly spiraling situation.
(Bright little ray of sunshine I am)

The Dow may rebound and move up to 9500 (I did not say "recover"), and then slide to 7000; move upward to 8250 and then slide down to 6000. This would not surprise me at all.

I work for a profitable mid-size Canadian oil and gas company whose stock has gone from $40 to $12 in the wink of an eye, mostly due to the sinking price of oil and natural gas, which is mostly due to expected usage curtailment, which is mostly due to worries about personal liquidity, which is mostly due to bank and national liquidity, which is mostly due to BAD and STUPID decisions by many people in many places for many months (and years).

The point is, that the market is interrelated to so many things that are going south right now, that it is considerably different than in 2000 where many aspects of the economy were still in good shape.

Well, Gott to go to lunch,
so we'll chat some more later.

Larry
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Larry,

If only America was having economic problems, I'd say we could solve it by 2009 and move on upward. But this is a global biggie, and we may be the leader downward in an increasingly spiraling situation.

Is this a stock market phenomenon or is a problem with the economy?

The great crash in Oct87 was purely a stock market phenomenon. Someone figured that if they sold the stock futures short, they could trigger a cascade. It worked and stock fell about 20% in a day, but it didn't affect the economy. Stock recovered and were actually up for the year.

9/11 hit Wall Street hard. When the market re-opened selling was heavy for about 10 days, but we had an incredible relief rally in Oct01 and Nov01. NYC was hurt by 9/11 but the overall economy just shrugged it off.

The financials have been in crisis for over a year. The problem has just recently spread into over sectors because lenders are being cautious in this environment.

If this problem persist for a few more weeks until the Fed and the Treasury start repairing the damage that they've created, the net impact on the economy will be minimal. People will simply defer buying cars and other big ticket items until it's easier to finance such purchases.

If the problem lasts for months, then it will affect job creation and major business projects (i.e, capital spending.) The result will be a short recession.

I think the most likely outcome is the first one. The fourth quarter will be weak, maybe even negative growth, but the economy will rebound strongly in 1Q09. Earnings estimates will be lowered over the next few weaks but revised back up ater the ER/CC in Jan09.

Jim
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The sell off is across the board because, as someone put it recently, the clerks on the margin call desk don't care about valuations.

The problem has been exacerbated by the restructuring of Wall Street because the relationship between the brokers and hedge funds has changed. The brokers let the hedge funds use a lot of margin debt, leveraging up to 4 times their capital, i.e. borrowing up to 75% of the value of the stock. Now that the brokers have either been bought by banks or are turning themselves into banks, they're reducing the leverage of the hedge funds. This has caused a lot of forced selling to meet margin requirements.

The stock market has been undervalued for the last 5-6 years if you compare the yield on stocks (1/EPS) to the yield on Treasury bonds. My "universal investment theory" is that a lot of fund managers were burnt by the bubble in stocks and were looking for other ways of making money. Mortgage backed securities looked like the answer. The profit potential wasn't as high as a good, fast growing stock, but they were viewed as being riskless, so you could make up the difference by using a lot of leverage. That dog don't hunt no more.

Both of the changes bode well for stocks.
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