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Author: JamesWAllen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 6364  
Subject: Re: Dow: then 11400, now 8579 Date: 10/10/2008 8:32 AM
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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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