WTF just happened?

Okay, our Dow 10,000, 9500 and now our Dow 9,000 targets have been hit.

Where do we go next — are we close enough to a bottom to buy, or are we heading much lower? 

Dow is now off 39% from its highs.

~~~

This cascading waterfall selloff is ugly. Next key level of support is 8750, where we would again be buyers of the market.

If that does not hold, then we are looking at no support until the 2002 levels — about 7250. (I may have to dust off that Dow 6,800 call).

As we noted earlier, tomorrow is that huge Lehman derivative settlement, and I wonder how much of this action is due to that.

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

256 Responses to “Dow 8579”

  1. engineer al says:

    “In 1990 the Dow was at 2442. Factoring inflation where would that be in today’s dollars?”

    According to the Minneapolis Fed calculator: 4028.

  2. patrick says:

    Something seems strikingly odd that people reading Barry’s site would spout of such speculative bullshit on 1) trade-able bottoms, and 2) market timing.

    Haven’t we learned anything about the evils of speculation? It reminds me that even a stopped watch is right twice a day.

    It also highlights that all bears stick together in a bull market, but then separate into “analysis driven bears” versus “speculative bears.”

    For the speculative bears, show some frickin’ kehones and back up empty opinions with facts, please.

    Favorite comment (from Mark E Hoffer): “Tomorrow either we crash or we rally hard. There is no in between. That much is sure.”

    This is wrong on so many levels, it doubled me over laughing.

    The smart money waits this out for months, not days or weeks.

  3. Bruce in Tennessee says:

    Ken Fisher has sent me an e-mail about the “8 most common mistakes investors make”……I understand he is still bullish here…just waiting for the turn.

    You know, I think I love financial advisors…what from old commentators blowing up their hedge funds, to old bankrupt hedge fund managers giving advice over the internet…

    Fisher, Luskin, Insana, Bowyer, Ferrell, and most of the commentators on CNBC except wonderful old Rick Santelli…

    there is a term coined by GI’s in WWII….

    Fubar…

  4. Frank Jewett says:

    The DOW was at 11K in July 2006, then it rose to over 14K. The housing market turned sour in August 2005. As Joe Biden would say, let me repeat that. The DOW gained 3,000 points a year after the housing market turned sour. Pretty clearly that 3,000 point move was a bubble as the investor class moved their chips from the blackjack table to the craps table, er, the stock market. Who would have thought the collapse of housing would affect stocks? Anyone with a brain, which excludes most of the people who regularly trade stocks.

    Under that short term bubble lies the mother of all bubbles. It’s been growing for 30 years, ever since baby boomers started moving money from savings into stocks. The siren’s call was higher yields, though in the long run there is no reason to believe that a higher yield is sustainable. Eventually risk takes a cut.

    Should the DOW be 7,500? How about 5,000? The only way to know is to take a real valuation of the companies, rather than the greater fool valuations Wall Street has been quoting as fact since the late seventies. At the end of the day, the only price that matters is the price where the company is willing to buy back shares because it believes they are undervalued.

    All the “fundamentals” and fed watching is part of a collaborative con game, an organized religion of people who believe for no earthly reason that above average growth is infinitely sustainable. The only reason “benchmarks” mattered was because the vast majority of you were playing the game by the same rules, but it was always just a game. It hasn’t been about value since the focus shifted from dividends to share prices.

    If a share isn’t paying out, it’s worth zero, unless a greater fool comes along. We’ve incubated two generations of greater fools. Even now, with reality staring them in the face, they are still talking about fundamentals and when it will be a good time to buy. The game is all they know.

  5. Favorite comment (from Mark E Hoffer): “Tomorrow either we crash or we rally hard. There is no in between. That much is sure.”

    This is wrong on so many levels, it doubled me over laughing.

    The smart money waits this out for months, not days or weeks.

    Posted by: patrick | Oct 9, 2008 5:50:47 PM

    Hey ‘patrick’ Remember: Reading Is Fundamental.

    I didn’t say any stupid *hit like that, thanks anyways~

  6. Tyler F says:

    I went to all cash September of 2007. You are crazier than a shithouse rat if you get into the market now… can anyone say Dow 4,000?? Remember, the market can remain irrational longer than you can remain solvent.

  7. VoiceFromTheWilderness says:

    Another Vote of Thanks here.

    I too am a small time investor, just trying to keep his 401(k) big enough to by food stamps when he’s 80, and without BR that goal would now be a pipe dream.

    Thanks BR, big time.

  8. jagamohan Swain says:

    “Tomorrow either we crash or we rally hard. There is no in between. That much is sure.”

    Actually that stupid *hit belongs to me.Yes it appears pretty stupid to me, IN HINDSIGHT!!!

  9. Chad says:

    Bring it on!!! I love this. I have plenty of cash on the sidelines and it’s time to put it to work…well, at least some of it.

  10. patrick says:

    Mark Hoffer: My apologies! I had grouped the names with the sections above the text, not below the blue line : )

    My bad. The Perpetrator was actually Jagamohan Swain. I hope he doesn’t manage OPM.

  11. Patrick says:

    Jagomohan – You’re the man!

    I think we can all use a chuckle on days like today.

  12. bullpin says:

    please tell me the next bubble i believe the realization that the oil econ is over no more gross consumption =production shit

  13. AGG says:

    Barry,
    Your blog is the proper application of the Rumsfield speech quote on Milton Friedman’s birthday which was celebrated at the Bush White House: “Ideas have consequences”. Telling the truth without an agenda (no cherry picking) is the idea which makes this blog so useful. I thank you and all those who speak from their heart and soul here. And to those who are grateful to any of my comments, I say pass it on. There is so much lying out there that we need all the truth tellers we can get.
    And thank you to those who wish to help local businesses in the George Baily model. This leads me to a pet peeve. Why do waiters, paper carriers and assorted people on the lower end of the economic ladder have to be the first to suffer in these times. Hey you! RAISE your tips; don’t lower them. They didn’t screw you. Help them too.

  14. Mentions above of David Tice. Wow. And remember Mark Haines screaming at Peter Schiff throughout 2007? Maria B. squealing at Dow 14k? Like most, I didn’t want to hear what Schiff was saying, or Shiller, or Barry.

    Fortunately I finally began to break after listening to the Tom Keene interview of Roubini maybe a month or six weeks ago. Started heading to cash though should have sold it all of course or gone more short. Still better off than the average hands-off holder.

    Like others I was waaaaay up early in the year (oil, ag and miners) and seriously thought about selling in May and going away. Instead I stayed in at least partly on the “presidential year” premise.

    Lesson: All that stuff is folklore. Now is now and “this time” really can be different.

    Best of luck to all.

  15. criticalthought says:

    when a market does this to so many people, they have a hard time getting back on the horse.

    this market is deadsville for at least 10 years.

  16. Patrick says:

    Mark Hoffer:

    This quote cracks me up:

    “What this Economy needs is lower Taxes & less Regulation.” – Mark E Hoffer, June 29, 2008

    http://meganmcardle.theatlantic.com/archives/2008/06/by_request_fisa_bill.php

  17. constantnormal says:

    I’m thinking that this is going to be similar to the Crash of ’29 — which dropped the DJIA about 93% over a period of 33 months between October 1929 and July 1933.  That was the collapse of a stock market bubble fueled by 10% margin requirements and widespread public participation in the markets.  Near the peak, there was a widespread belief that it was impossible to lose money in the stock market.

    This is basically the collapse of a real estate bubble, fueled by nothing-down mortgages, commoditization of mortgage debt, 30:1 leverage in the broker-dealer industry, government encouragement, widespread corruption, and a faith and belief that housing prices could never decline.  The stock markets are only getting caught in the splatter from the demise of the debt markets, as corporations require credit to function.

    So far we are about 12 months into this.  It should proceed more quickly, due to automated order entry and trading systems, allowing things to fall a lot faster than they did between 1929 and 1933.  We have entered a very steep part of the slide now, and the next few days should be very exciting, historic even.

    Fair warning — it is too late to make any portfolio changes at this point, IMHO.  Trading in the markets over the next few days will not be like trying to catch the proverbial falling knife, but more like trying to catch a falling (running) chain saw, amid a hailstorm of anvils.  Odds are that order entry systems will fail anyhow.  You have been warned.

    That said, it might be fun to watch.  These next few days are destined to enter the history books, and you will NEVER see anything remotely like them again in your lifetimes.  I think it’s a near-certainty that they will close the exchanges at some point, as they have no plan to deal with things, and there are no fools left that are willing to buy.  Only sellers remain.  Savvy and knowledgeable traders are decrying the breakdowns of their technical market indicators, and no one has a clue as to at what level we will hit bottom.  Fundamentalists say that PE ratios indicate that valuations have a lot farther to go before reaching “historically cheap” levels.  Dow 7000 is certainly possible.  An 80% drop from the peak would indicate a DJIA of around 2800, if that metric has any value anymore.

    A pity that this did not happen a but farther into the future, as it would make for an excellent Halloween.

  18. gregh says:

    Another vote of thanks. I went 50% cash back in Jan. The other 50%? gulp – still in various fidelity, troweprice, & american century mutual funds – midcap, large, international. Most of it aggressive growth too. At least I could’ve rebalanced a bit DOH!

    Where’s my bear Rally so I can sell and buy some TIPS

  19. ExcelDude123 says:

    If anyone is interested, I pulled together an admittedly simplistic spreadsheet tracking S&P cycles back to 1952. It appears that only two cycles have had worse declines over the past 50 years — Apr 2000 to Sep 2002, and Oct 1972 to July 1974. The spreadsheet is posted online via Google Docs at:

    http://spreadsheets.google.com/pub?key=pTdHqdYC9WmtQrAtSzWHIKg

  20. Mike G says:

    Anyone want to buy a copy of “Dow 36,000″?

  21. jagamohan Swain says:

    “Jagomohan – You’re the man!”
    Patrick it’s Jagamohan.

    “I think we can all use a chuckle on days like today.”-

    I am happy to serve.:)
    Be on the watch.More is coming.:)

  22. Bruce in Tennessee says:

    Leftback,

    I want you to buy some of that Lehman dreck tomorrow and prop this market up…Karen says you have a desk made out of solid Krugerrands that you ate the last two Whoppers on…you could trade that in and save the economy.

    And call George W. and tell him to wait until the markets close. And yes, I voted for him. And yes, wish I hadn’t…but I’ve met Al Gore…and…um.

  23. Mike in NOLa says:

    patrick:

    “The smart money waits this out for months, not days or weeks.”

    The smart money was short.

  24. dangermole says:

    shouldn’t we all at least find a corner of our portfolios to go long TSCM right now?

    stocks gonna pop with all the new subs after Cramer’s mother of all market calls!

  25. Posted by: Patrick | Oct 9, 2008 6:38:51 PM

    Patrick,

    Guess What? only one guess, now…

    What this Economy needs is Lower Taxes & Less Regulation.

    The 75-year experiment with ‘Keynesanism’ has proved to be a Total Failure/Complete Swindle for the ‘little Guy’ it was supposed to ‘protect’.

    Shielding Children, and the Infirmed, is one thing, Shielding Adults, keeps them as children(see: most Baby Boomers).

    It’s Over. We’ve two choices: 1) We can sack up, and go back to the beginning, again, keeping the ‘Gov’t’ Chained, or 2) We can keep believing the unbelievable, ‘Cained Peep-estilio, and see our ‘protector’ forge ever more links, ensuring our Slavery.

    But, past that, if you have any other misquotes to attribute to me, or quotes, of mine, that you can take out of context, feel free..

  26. VJ says:

    Oh no.

    The Moron plans to speak to the nation in the morning to tell Americans they should remain confident.

    Egads.
    .

  27. Larry C says:

    Gene Rodenberry said it all.

    Nothing else needs to be said at this time.

  28. wally says:

    jm,
    I was looking at that question, too. I think the answer is: The 4000 to 6000 range. That is a bit of an overshoot at the low end and a shade to high at the high end, but I still think it is about right.

  29. Anyone want to buy a copy of “Dow 36,000″? Posted by: Mike G

    A current Amazon review of the Hassett book:

    September 22, 2008

    “Why is this book out of print? I think that Hasset’s predictions, if anything, were merely slightly ahead of their time. Like Aristotle, Picasso, and Bonaparte, his genius will only be fully understood long after he is dead and gone.”

    A wicked wit.

  30. http://www.bloomberg.com/apps/news?pid=20601213&sid=a10POAxGqTZc&refer=home

    Mutual Fund Withdrawals a Record as Investors Flee (Update1)

    By Sree Vidya Bhaktavatsalam

    Oct. 9 (Bloomberg) — Investors pulled a record $52.1 billion from U.S.-managed stock and bond mutual funds in the past week, seeking the safety of government-insured bank deposits as the financial crisis worsened.

    Shareholders took $43.3 billion from stock funds and $8.8 billion from bond funds in the week ended Oct. 8, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus followed $72.3 billion of outflows in September, the most in a single month. Investors deposited $185.5 billion into bank accounts last month through Sept. 22, TrimTabs said, citing U.S. Federal Reserve data.

    “People are scared,” Conrad Gann, TrimTabs’ chief operating officer, said in an interview. “This market is different from what we’ve seen before.”

    this was too obvious, not to predict..

  31. Clint Golden says:

    I believe the bottom will be after the Election and it will be a DJIA somewhere between 6900 and 7900.

  32. Chris says:

    30% SDS
    30% TWM
    30% GLD
    10% Cash

    Thanks to this blog I’ve been short nearly all year. I bailed early on SKF…damn fed bastards…but I’m over that now.

    Even blind squirrel find an acorn now and again.
    :)

  33. MarkD says:

    Off Topic but . . .

    Barry, in the name of all you call Holy can we have a Friday Night Jazz and a Weekend Linkfest with your usual eclectic links (not just the financial stuff) consider it a public service

    Thanks

  34. zee says:

    5000-6000 in next few weeks as AXP, BAC, BA, CAT, GM, JPM,UTX go even lower

  35. Dumb Bush says:

    too bad we hadn’t privatized social security!
    ha ha ha!

  36. donna says:

    So….

    Is this black Thursday, then?

  37. Mace says:

    A first 401K casualty:

    I have CoWorkers that work for CMSE (Choctaw Enterprise). Principal Financial just sent a notice that the PFG sponsored Real Estate 401 K fund is FROZEN until 2011…due to the non liquid markets. This letter went out in the mail, probably on Monday.

  38. tms says:

    Houston we have a problem

  39. Mace says:

    Ron Paul’s investments are doing great. (No – did not vote for him). He is in gold and gold stocks per his public disclosure.

    So how has the Fed saved the dollar, or stopped inflation? Why did the Fed let the Depression go from ’29 until mid ’39? And while we are at it, why was the unemployment rate 21% and RISING in 1938.

  40. Transor Z says:

    @ Mace: Because the military industrial complex was still just a gleam in its father’s eye in ’38.

  41. Mace says:

    Tansor Z…so I hear…the WWII defense spending pulled us out.

    So the last Democratic President to preside in a depression confiscated gold.

    Will we have a Democratic President?
    During a DEEP recession?
    And will we call in gold to underpin the $USD?

  42. AbeSklaroff says:

    Larry, looks like you have already bought the bottom three times, no wait… four, if you call the cramer fade a bottom call.

  43. ct says:

    Larry did not want to hear the ‘Zimbabwe’ comparisons tonite. So we know how this ends now!

  44. Transor Z says:

    1. Yes.
    2. No, I’m afraid it will be a Depression
    3. No, because the Fed will need maximum flexibility to set monetary policy and interact with foreign currencies.

  45. Mace says:

    3. Then maximum flexibility means, by definition, that the pol CAN move against the citizen because nothing is out of bounds. And by my God given rights, I will have to resist. Think Minute Men and Sam Adams.

  46. OhNoNotAgain says:

    Clint,

    “I believe the bottom will be after the Election and it will be a DJIA somewhere between 6900 and 7900.”

    I think you’re correct. It will revert to the stability of the mid-90′s before the initial run-up, from which we haven’t returned (yet).

  47. Murph says:

    Only 8579 on the downside until we reach support.

  48. So how has the Fed saved the dollar, or stopped inflation? Why did the Fed let the Depression go from ’29 until mid ’39? And while we are at it, why was the unemployment rate 21% and RISING in 1938.

    Posted by: Mace | Oct 9, 2008 8:38:41 PM

    Mace,

    the GD was a massive PsyOp to emasculate and domesticate the American People. Even, B. Bernanke admits that the FedRes caused/triggered the start of it. You should read some Histories of those Days. The Nature of the Republic was, henceforth, Changed. All roads, Economic, truly led to W-D.C., every Industrial vertical was controlled by their own Gov’t panel of bureaucrats, every price legislated, by fiat, to be paid in Fiat. And on, and on..

    This time, unlike 1980, Reagan won’t entering, from stage-right, to resuscitate the dying Corpse of Keynesian folly for another round of Subtraction by Distraction, Financial ed.. There isn’t that much left to be concerned with. Now, again, it’s about the Future, and it isn’t about Cash, it’s about Control.

  49. Mace says:

    Mark…agree. We are going to have massive experimentation. USA a big science project to prove Econ 101 does not work, that we can cool the globe, and stop the oceans from rising. And then…after about 3-4 months of those fiat controls…we’ll say, dude – from where does my food come?

    But I am optimistic. My Dad said we can always come home and raise that garden on the land….Sweet potato pie and shut my mouth.

  50. Mace,

    minor note, with this: “project to prove Econ 101 does not work”, as long as you mean the JMK, NYTimes BestSeller, version.

    and the Economagicians that think they can harness the Chaos-that which holds the germ of Life itself-of Nature with their static Equations and fallacious metrics.

    past that, of course, Optimism is what is up. We know, in any story worth reading, that Good wills out. It has to be the ending of this Chapter, as well.

    as an aside, speaking of Gardening, know that all seeds aren’t created equal–here, to reference, No GMO.
    http://www.seedsofdeception.com/Public/Home/index.cfm

  51. Lucas Squawker says:

    Way too much Economics 101! Wowza!! Over-thinking a plain and simple slaughter.

    1. No high-rollar activity at the tables after yesterday’s non-reaction to the rate drop, being cautious about tomorrow’s CDS auctions and uncertain global updowntrend.

    2. Pent up short positions just unleashed this morning, and kept invisible until around mid-day by normal choss of market churning sideways, … a silent tsunamai.

    3. Main Street panicking that rate drop didn’t have effect, and thanks to Cramer’s heads-up, many screaming at their brokers to “sell at the market!” into no demand, except naked shorting.

    Classic waterfall! No high-roller upside, pent up short positions, unsophisticated dumping, oh… and pesky floor dealers gaming the table play, holding orders.

    Forecast for tomorrow. Worse…a shorts feeding frenzy on elderly in the water, against a background of global Titanics.

    So was Cramer a saint for foreseeing this and warning Main Street when no one would, or did he throw the sheeps to the wolves, even though he had intended to save them?

  52. jj says:

    Retirement Savings
    The market decline is hurting many people that are close to retirement. This is a very sad time for those that depended on their government and trusted the institutions. The leading edge of the baby boomers were predicted to have a negative impact on spending and on the stock market as they shifted en masse into retirement. With many being wiped out as they are set to enter this period of their life is a far worse outcome than ever expected. Please look after your parents!

    Aging Japanese population
    Japanese demographics leads that of the US by several years, so perhaps that profile might lend some insight or validity as a reference point. The Japanese are doing alright without a stellar stock market.

    Busted
    Nikkei: From its peak in 1989, this index zigged and zagged 80% down a rocky slope into 2003. Along the way, there were some amazing bear market rallies of 18%,35,50,31,59,62 (approx) before finally hitting the 2003 bottom. Out of these ashes the index sprang 137% from 2003 to 2007 but has since has fallen back 50% from the 2007 peak. Perhaps it will take out that 2003 low.

    From 1989 to present there were seven declines averaging 41% and 7 rallies averaging 56%.

    Back to the US
    You may speculate that the US stock market is in far worse shape than 2002-3. If so you should not be surprised if the lows of 2002-3 were eventually violated. Financials have paved the way; as the crisis chokes the rest of the economy many sectors will likely tumble. Credit contraction is a destructive spiral of shockwaves. Looking at these long term cycles the mid point between extreme pessimistic and optimistic scenarios is still much lower.

    S&P: ttm P/E’s are around 17. If/as earnings fall, prices must come down. Worst case is earnings stay flat and stock-disgust leads to P/E’s of 10-12. That means 530-600 on the S&P500 is a realistic target. Can you believe that? What if earnings fall 50% and P/E’s fall to 8? That is capitulation material, not P/E’s > 15.

    The tsunami is rumbling, and the VIX can exceed 100. Perhaps there are still too many rally-callers in the crowd to call the cyclic bottom just yet. In bull markets the pessimism is usually a good contrarian signal, but in bear markets I think it just means things can get worse. The secular bear began in 2000 so the intermediate lows of 2002 are not sacred and should at least be tested. Besides- is this not the doomsday – the 4th turning – the end of Maya?

    I hope the bright side is that the mess should be dissipated enough for the next generation to build anew and prosper (that is if if the FED can just stop spending their future dollars).

  53. rockitz says:

    zee,

    I’m with you. 5000-6000 is where the bottom will be. Physical gold and select gold stocks until then. For a look at the future try looking at Argentina’s Merval during the period when their currency collapsed for a preview.

  54. Economics 101 says:

    Yes… I know. Sorry about all the thinking. Today was a slaughter. If it makes you feel better….. I was givin my business enviornment(Ethics) class hell as I took all of them to school in economic history and how it relates to the current crisis. Also, I was amazed at the general lack of knowledge by my fellow students. I feel like I’m a rare bird that actually goes to the library and studies for hours and hours reading books that I have to knock the dust cake of of to read. I hope that at least I will get to finish school as we enter this period of do-do. I’m really glad to be able to speak to you folks who understand. At school I feel like I’m always explaining s*** to people. And then….. They still don’t get it even after I “dumb it down”…..

    Thanks all,

    Econ 101
    Student of Business Finance(Major), with a double minor in International Economics and Political Economy.<<<< I really love to study these topics. P.S. I jest about the irony of Econ 101 as we all know which school that falls under….LOL.

  55. fresno dan says:

    I made my prediction of DOW 6000 on September 14, 2008 and I’m sticking with it. It ain’t just subprime – lop off 20% of everything that was financed – it was all loopy securitized stuff, with money “loadned” to individuals and businesses that have no hope of paying it back. And yeah, my 401k is off 30% – but fantasy is what got us into this mess.

  56. Posted by: Economics 101 | Oct 10, 2008 1:22:39 AM

    with this: “Sorry about all the thinking.”, as I told you b4, never apologize.

    and, the bad news, with this: “Also, I was amazed at the general lack of knowledge by my fellow students. I feel like I’m a rare bird that actually goes to the library and studies for hours and hours reading books that I have to knock the dust cake of of to read.” , is, that, it never seems to change.

    but, with this: “I’m really glad to be able to speak to you folks who understand.”, the good news is that there are those, again, seemingly, always, that know: ‘If you don’t Pay attention, it’s going to Cost you.’.

    this: ” At school I feel like I’m always explaining s*** to people. ” is funny, reminds me of an ECON 410 class, that I had second-semester Freshman year, where, much to the chagrin of my Sr. classmates, that wanted nothing more than hit the job-market, I had to keep correcting the fundamentals errors the ‘Prof.’ was making..

    only brought up to lead to this: “I hope that at least I will get to finish school as we enter this period of do-do.”–don’t worry about it, ‘school’, as you know, is a mere social construct. There will always be those that understand: “Self-education is Preservation.”