Down to a new 12 year low and going lower.
Saw this on the web.
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Interesting analysis done today on the DOW 30:
For the analysis they used 3 groups in the DOW. Group C which is the worst companies (BAC, C, AXP, AA and GM)
Group B (INTC, MSFT, DIS, PFE, MRK, HD, JPM, HPQ, GE, DD, CAT and BA)
Group A (MMM, T, CVX, XOM, IBM, JNJ, MCD, KO, PG, WMT, KFT, VZ and UTX)
Group C goes to zero....loss to the DOW -208 points
Group B goes to zero....loss to the DOW -1,944
Group A is worth 5,000 points on the DOW
So you want to pick your bottom 1,000, 3,000, 5,000?
Lets say group C all go to zero. Group B goes down 50% and Group C goes down 25%. That puts the DOW at 4,700. Lets say group C goes to zero, group B goes to zero and group A goes down 50%. That puts the DOW at 2,500. All depends on Group A!
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Based on this analysis, it seems to me that the bottom near term (1-2 years) is somewhere above 4000. B and C are not going to zero, and Group A is not likely to collectively go down 50 percent, although some of them might. Some of them are sitting on a pile of cash. Typical patterns would have the Dow going down in reaction to bad news or bad earnings, and reaching a new low point, at which time there is a short term rally, and then a holding pattern for a while, til something else happens that starts the downward trend again. The market will not move down all at once, or in a straight line, but it will instead be a long, drawn out process.
If the recession continues long enough, the Dow could eventually go below 4000. That depends on how soon this government gives up on trying to spend its way out of the recession. I’m not confident that the administration or Congress will give up on its radical agenda anytime soon, but if there is enough blowback on these plans, they might ease up some, and then the elections of 2010 might help further slow down the drive to socialism. If that happens, recovery can possibly begin in 2011. If not, if banks and health care and auto manufacturing and other key industries become government entities, the market will keep going down. When the New Deal programs began taking hold in 1935-37, many years after the crash, the market continued to make new lows. At its lowest, it lost 90 percent of its value, which, in today’s terms, would mean Dow 1400. That is not out of the realm of possibility.
Then, there is the chance of inflation. If the government spends money, but cannot convince the Chinese to buy Treasuries, then that means it will be printing money. Inflation will make a terrible situation even worse, as it will wipe out people’s savings, but will not result in an increase in production. Incomes always lag prices, and consumer spending will be reduced even further, which will diminish the chance of recovery.
At this point, I would not hold any stocks. Unfortunately, shorting should not be done except by expert traders, because upswings can be violent and quick, even though they will ultimately fail. Most of the big rallies in history occurred in the 1930s, during the depression. Similar rallies are entirely likely in this recession.
Cash and treasuries are ok for now, but be watchful for inflation.
Don’t rely on the FDIC. It cannot protect us if the entire system fails, it can only function if there are isolated bank failures. Try to own things that will retain value no matter what, that can be useful even If there is inflation or if the economy collapses. Even if the chance of such terrible problems is small, it is not so small that we shouldn’t insure against it. We insure our cars and homes against much more remote calamities.
Sorry to be so negative. I hope I’m wrong.