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Bad News Bear

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[Photo of Bear Cartoon]Pundits say we’ve hit bottom. “Time to buy,” they say. Well, I don’t buy it, do you?

All you have to do is glance at the headlines. “US retail sales continue to fall,” “Auto sales crash again.” The words “continue” and “again” seem to indicate a long, drawn out, downward spiral.

Damages from the housing bust and subprime crisis have been severe. And the global financial system barely escaped the jaws of death on 10 October 2008. So as job losses escalate and consumer spending plummets abroad, it isn’t difficult to see that the next earning reports will be numbing.

History shows that the Dow Jones fell 44.47% from a peak of 1039 to a trough of 577 during the ‘70s and ‘80s. Back then, we experienced an oil price shock and a subsequent recession.

Last November, history repeated itself when The Dow fell 46.41%, from 14093 to 7552. There was a similar oil shock along with surging commodity prices, a housing bust, and recession. If we factor in subprime, credit crunch, and the global financial crisis at another -20%, does this mean we can expect The Dow to plunge deeper to 6000? It is a scary thought.

But markets are manic-depressive. They are so unpredictable nowadays things can go either way. We cannot rule out the possibility of a rebound, although we can’t predict where a rally will occur.

The most productive thing to do is wait and see. Take a sabbatical. Schedule your oft-postponed executive checkup, rethink your diet, hit the gym, learn a new sport, check into a wellness spa, bond with your kids (long orphaned by obsessive investing).

Whatever economists say about the next two quarters, Q3 2009 looks promising. The crisis will, by then, have (likely) detoxified the global financial system; and most of the bad news will have been factored into decisions and addressed.

Print ed: 02/09

 

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