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Subject: How low can it go? (Dow Jones) rss

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Jeff Brown
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Well from my last check the market fell at least another 500 points today. How low will it go.

In a side note I hope that I can get my race for the galaxy expansion before the economy completely collapses on itself.

 
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Chad Ellis
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I was a securities analyst for five years, working in London and the US and covering a pretty wide range of equity markets. One thing I took away from that is that while markets aren't necessarily efficient there are very few people (if any) that can consistently guess their directions.

Thus anything I say on the subject has at best a 51% chance of being right. That said, onto the bold pronouncements!

This is an event that caught the market largely by surprise. Last I checked, analysts were still forecasting significant corporate earnings growth for 2009 which seems extraordinarily unlikely. A recent survey showed that a majority of Americans actually consider a depression to be likely, and while I think that's probably a short-term panic reaction, that's not the sort of thing that leads to consumer spending. We're likely to be in for a long and painful recession -- worse than many people alive today have seen.

All that said, recessions aren't always that bad for equity markets. They tend to keep interest rates low and dampen inflation. Since equity values are highly affected by the discount rate used to value their cash-flows (and the discount rate in turn is affected by interest rates and inflation expectations), those are both good.

So yeah, I have no clue what the market is going to do. Must be why I put all my money in Index Funds and then ignore the market.
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Jeff Brown
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Chad_Ellis wrote:
I was a securities analyst for five years, working in London and the US and covering a pretty wide range of equity markets. One thing I took away from that is that while markets aren't necessarily efficient there are very few people (if any) that can consistently guess their directions.

Thus anything I say on the subject has at best a 51% chance of being right. That said, onto the bold pronouncements!

This is an event that caught the market largely by surprise. Last I checked, analysts were still forecasting significant corporate earnings growth for 2009 which seems extraordinarily unlikely. A recent survey showed that a majority of Americans actually consider a depression to be likely, and while I think that's probably a short-term panic reaction, that's not the sort of thing that leads to consumer spending. We're likely to be in for a long and painful recession -- worse than many people alive today have seen.

All that said, recessions aren't always that bad for equity markets. They tend to keep interest rates low and dampen inflation. Since equity values are highly affected by the discount rate used to value their cash-flows (and the discount rate in turn is affected by interest rates and inflation expectations), those are both good.

So yeah, I have no clue what the market is going to do. Must be why I put all my money in Index Funds and then ignore the market.


I always enjoy your comments on the economy.

By the way I'm also hoping to get a copy of Battleground Kingdoms before we all end up in some post apocalyptic movie setting also.
 
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Jorge Montero
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I'll take Manhattan in a garbage bag. With Latin written on it that says "It's hard to give a shit these days"
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I doubt this will end the financial world as we know it, but I'm sure it can still go lower. Down to 8000 would be crazy though, and we are only a few bad days away from that. The DOW hasn't been down to 8000 since the dot com bubble burst, and that was just for a matter of weeks. The market hasn't been consistently under 8000 since 98!

Oh well. I'm glad I had more liquid savings that it'd have been advisable at my age level. I can stick them in funds when the market stabilizes a bit

 
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Steve Cates
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It can go to zero.
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Darren M
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It can go a lot lower. Who knows how low though.

50% drop from the all time highs = 7099
75% drop = 3550
90% drop = 1420 (Dow dropped 89% during the Great Depression so that's as good a "worst case" guess as any).

Traders playing options (buying puts, straddles, strangles etc are doing reasonably well as long as the volatility and huge moves continue).

 
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Mr. B @ Rockin' B
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8300 points give or take 200
 
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Scott Alden
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If the tech bubble burst went to 8000, then I don't see how this can't be lower that that since the reach is much much wider.
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Trey Stone
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I'm watching my funds spiral, though not as fast as the Dow, so that says my funds are solid.

On the other hand, a falling market does create opportunity for plenty of low hanging fruit, especially for small/new investors. So now is a GREAT time to get in, if you can tolerate the rollercoaster plunges.

I can. History of the market, long term, is great for those who buy and hold. Those dollar cost averaging will clean up.
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Darren M
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Not to be a party pooper... but there are inbuilt biases in the buy and hold strategy... the fact that we have had generally strong growth and bull markets (and very short but sharp bear markets) over the last several decades gives the false impression that markets recover relatively quickly.

Several times in the last 100 years there have been periods of 15 years+ where markets have gone nowhere. If your time horizon is truly 20+ years then fine.. but if a person has a time horizon of less than that for their children's college funds, retirement etc... then I think it's a dangerous fallacy to believe that the markets will necessarily behave like they have over the last few decades.... they can very well behave like they did in the depression era of the 1930's or the late 60's to early 1980's.

Hopefully we have a short sharp correction and the return of a bull market occurs again in the coming years but that's certainly not a given.
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Trey Stone
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It all depends on what you think the market is likely to do. Me, I'm going with the weight of history and on the fact that I do have twenty plus years until retirement. Plus, I'm single, with no kids, and that won't change. The no kids thing, that is.

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Jeff Brown
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Down 200 halfway through the day.
 
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Chad Ellis
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GAWD wrote:
Chad_Ellis wrote:
I was a securities analyst for five years, working in London and the US and covering a pretty wide range of equity markets. [...] So yeah, I have no clue what the market is going to do.


So we have you to blame for this mess ... perhaps you should run for office.


Nah, analysts are generally harmless. Besides, that was back in the early-to-mid 90s. sauron
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Chad Ellis
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tstone wrote:
History of the market, long term, is great for those who buy and hold. Those dollar cost averaging will clean up.


First sentence: 100% true.

Second sentence: Not so much. "Dollar cost averaging" is actually a myth that continues because so many, many people are bad at math.
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pronoblem baalberith
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P. Al Williams
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Once again, back is the incredible, the rhyme animal.
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Trey Stone
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D! Public Enemy Number ONE!
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Jorge Montero
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Down to 8500. Biggest single day fall in decades. I guess that those billions will buy us a bigger chunk of a bank if things keep going down.
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Bela's dead and Vampira won't talk
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hibikir wrote:
Down to 8500. Biggest single day fall in decades. I guess that those billions will buy us a bigger chunk of a bank if things keep going down.


You doubted my DOW 8000 call in "Fiduicy"?

I was visited that night by the spirits of JP Morgan, FDR, and Biggie Smalls.

"I behold an empty seat in that corner of Wall Street," Biggie told me that day, "If Wells Fargo does not outbid Citigroup, Wachovia is like to die."
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Jorge Montero
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le_cygne wrote:
hibikir wrote:
Down to 8500. Biggest single day fall in decades. I guess that those billions will buy us a bigger chunk of a bank if things keep going down.


You doubted my DOW 8000 call in "Fiduicy"?

I was visited that night by the spirits of JP Morgan, FDR, and Biggie Smalls.

"I behold an empty seat in that corner of Wall Street," Biggie told me that day, "If Wells Fargo does not outbid Citigroup, Wachovia is like to die."


Did JP Morgan offer any investment suggestions, like Orange juice futures or lottery tickets?
 
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Bela's dead and Vampira won't talk
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hibikir wrote:
Did JP Morgan offer any investment suggestions, like Orange juice futures or lottery tickets?


He came to me from across Wall Street, where I stood in the rubble that once was the NYSE. In the midst of the panic, he pointed to my inventory of shotgun shells and post-apocalyptic leather jackets. A hush fell over the crowd as he raised his hand and declared "I'm a buyer."

So, yeah, he seemed to approve of my ammunition and canned goods investment strategy.

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Darren M
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I fully expect the next step will be a closure of the US stock markets for a set period of time. First they introduced measures to eliminate shorting (silly because lack of buyers is the real reason stocks fall) so they are grasping at any straws they can think of to hold the daily declines in check.

I don't doubt we will soon see a 1 week shutdown to markets (perhaps globally) so a "calming period" can be introduced to try and induce calmer attitudes towards the global crisis.

 
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Steve Bernhardt
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Chad_Ellis wrote:


Second sentence: Not so much. "Dollar cost averaging" is actually a myth that continues because so many, many people are bad at math.


Please explain, I'm not sure what you mean. I've got a 401K that is tanking badly, but I'm putting quite a lot of cash in spite of that.
 
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Darren M
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http://www.bloomberg.com/apps/news?pid=20601087&sid=aRGBVS4o...

The first Japanese casualty... an insurance company filing for bankruptcy because of declining values in its security holdings.

The probability(inevitability) of further Asian banking/insurance failures will likely lead to further waves of selling in Europe/America. Some Asian banks have already had bank runs... http://www.nytimes.com/2008/09/25/business/worldbusiness/25e... but belief is generally that the Asian finance system is less vulnerable to crisis than European/American markets... that of course remains to be seen as global markets are highly correlated and interlinked.
 
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Chad Ellis
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wargamer66 wrote:
Chad_Ellis wrote:


Second sentence: Not so much. "Dollar cost averaging" is actually a myth that continues because so many, many people are bad at math.


Please explain, I'm not sure what you mean. I've got a 401K that is tanking badly, but I'm putting quite a lot of cash in spite of that.


Dollar cost averaging is the idea that if, instead of investing your money all at once you invest it in fixed dollar amounts at several different time periods you get a better entry price. For example, let's say that you have $1,000 to invest and you invest it in blocks of $500 with a three month gap. The stock you're investing in trades at $10 a share at one point and $20 at the other, for an average price of $15.

Your entry price is lower than that. You'll buy 50 shares at $10 and 25 shares at $20 for a total of 75 shares with a total investment of $1,000, which comes to $13.33. So what's the problem?

It's the wrong comparison. Just like the average speed of someone moving at 30mph for ten miles and 90mph for ten miles isn't 60mph, this just illustrates that for a given dollar amount the average expected entry price is lower than the mean of the actual prices. Dollar cost averaging brings your expected result closer to the mean but it doesn't actually improve your expected result.
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