34 Percent in 16-days

Friday, October 10, 2008

One year ago, perhaps 1 in 1,000 would have guessed what market this is referring to today, if that. The S&P 500. On 9-19-08, just a few short weeks ago, the S&P traded above 1275. Today, the low so far is below 838. So far, a 437 point drop in just a matter of 16 trading days.

I have been asked to share my input on the situation, but before I do, I have a few other statistics to share.

• According to statistics, yesterday, approximately 32,000 people were diagnosed with cancer. 20,000 other died from it.
• 120 in the US died in a car wreck yesterday, and another 120 will die in one today.
• Approximately 11,000 American families welcomed a new born baby into their family yesterday.
• One of those 11,000 was my sister, 2-months early and in intensive care fighting for his life.
• Almost 1 million Americans celebrated their birthday yesterday, hopefully with friends and family
• Approximately 347 million Americans slept in a soft bed last night, with warm covers
• Approximately 3.5 million Americans slept outside, having no bed, and no home.

I could go on, but you get my point. Yes, the stock market is tanking, but for many other people, there are far more important things on their mind, some good, some bad. Yes, the stock market is tanking, but we have so much to be thankful for, not only family and friends, but the little things in life that we take forgranted...such as being able to sleep in a warm bed. Part of my input is to not lose sight of what is really important...and if you have lost sight of what is really important, and something like this reminds you before it is too late, then it is a good thing.

The other part of my input is a little different. I think it important to put context first. The stock market is tanking, and with it, the other markets are reeling as well. Everyone keeps asking when the bottom is going to be in...based on my analysis, I wouldn't be betting the farm that it is anytime soon. This is only an analysis, things change and things may not happen according to my conclusion, but it is something to think about.

In 1929, the Dow hit a high of just over 380. From the beginning of September of that year through the beginning of November, the Dow plummeted to a low of just under 200. The market then stabalized for a period of time. The initial drop was 47%. As of today, we hit the 47% market from highs made just one year ago.

By the end of 1929, the market rebounded to about 270, ending the year down just under 29%.

1930 - 1933 is a different story.

In 1930, the market continued to rally to over 290. A recovery looked like it was on its way. However, from April through December of that year, the market steadily declined to about 155. This was a drop of 46% from the highs made that year, and almost 60% from the highs made in 1929.

Surely the bottom was in.

In 1931, the market rallied to almost 200 again, and then from late February to the end of the year, dropped to just over 70. This was a 65% drop from the highs that year and an 81.5% drop from the highs of 1929.

When did the low come? In 1932, the low hit 40. By the time the Great Depression had run its course in the markets, it had dropped the Dow by 90%.

In 1933 and 1934, the market tried to move higher, but mainly bounced between 50 and just over 100, reaching about 115 in both years. It was not until 1935 that there was a sustained rally. However, it was not until 1954 that the market finally moved beyond the highs of 1929...25 years.

In 1987, the Dow dropped from about 2,700 to about 1,600, a 40% drop in a matter of days. However, the market has never hit that low since. In 1989, the market moved back up to 2,800...new highs in just 2-years.

In 1929 when the market started to drop, it finally dropped to where it was 25 years before the drop began (1904 the average price was just over 40). The drop was not a sudden drop, but one that was methodical, lasting...it had teeth.

The all time highs in the S&P was hit approximately 1-year ago. Since that time, it has been a steady, methodical drop, culminating thus far in this week's absolute plummet. But even that was steady...dropping 434 points over a 16-day period. The Dow went from over 14,000 to a low of 7,900 today. 3,700 of those points were in the last 16 trading days.

Conclusion:

A a probable conclusion is not hard to figure out here. A sharp sell-off is different from a sustained one. In 2000, the S&P went from 1,550 to about 770 in 2002...and the economic picture was not nearly what it is today. We are in year one of what could be a 2 - 3 year sell-off before we finally hit a bottom. I do not believe we will go into a "great depression", but a depression of some sort is likely from here. We should have rallies in the market, and then more lows to come, possibly through 2010. The Great Depression took prices back 25 years. A 15 to 20 year price fall would not be shocking at this point...with eventual lows coming in at around 4,000 for the Dow at best, and possibly back down to the 2,500 level at worst.

Obviously, things can change, this is only an analysis comparing this sell-off with other times in history, but it is one that is worth considering in order to properly plan.

I will have more on this in days to come.

Sincerely,