02/05/10 Baltimore, Maryland – Here’s a cartoon sent by one of our dear readers. We have readers all over the world. But Pamela must be one of the most remote. She lives on a tiny island in the middle of the Pacific. We’ve seen the photos. It looks stunningly beautiful. A South Pacific paradise.
It’s a little surprising that someone who lives in such a paradise setting would trouble herself worrying reading The Daily Reckoning and worrying about macroeconomics. But the world of money is fascinating. And probably a lot more entertaining if you’re not in the middle of it.
Yesterday, investors must have felt like they’d rather be somewhere else. The Dow registered a loss of 268 points. Gold took a $49 beating.
We won’t know for sure until tomorrow. If tomorrow is another bad day – as it probably will be – then it will be clear that the last stage of the bear market has arrived. This should be the final drop…when stocks should go down to their ultimate bear market low.
Where will that be? We don’t know. Maybe Dow 5,000. Maybe lower. One way or another every major bull market needs a major bear market. The two go together like yin and yang, Abbott and Costello, or gin and tonic. Take one out of the picture and the other one no longer makes any sense.
We’ve had our bull market. It took the Dow from under 1,000 to over 14,000 in the space of 26 years. We’ve had a bubble too. The party was a lot of fun for everyone.
Now, it’s time to clean up. It’s time for the bust in the economy…and the bear market in stocks. That’s just the way it works. Sorry.
If this bear market is going to correct the entire bull market from 1982 onward, it has to take prices back to the levels they were when it began. Back then, you could buy the Dow (from memory) for about 5 times earnings. Now, (we’re not doing any research here…just broadly remembering the figures…) it’s at about 20 times earnings. If those numbers are correct, you’d expect the final low to come in about a quarter of where it is now…or about 2,500.
Another way to look at it is to ask ourselves what the Dow of ’82 would be today, adjusted for consumer price inflation. We don’t know the answer to that either…but we’ll guess that it would be about 4 times what it was then – or about 4,000.
So, now we have a range… We know roughly where this market could be headed – if it is the yang we’re expecting. And if that’s where it is going, a South Pacific island paradise would be a good place from which to watch it get there.
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Harry?
haha Lee! I was going to post the same thing.
No joke, but I was going to post something to that effect as well.
Harry we are waiting
“We won’t know for sure until tomorrow. If tomorrow is another bad day – as it probably will be – then it will be clear that the last stage of the bear market has arrived. This should be the final drop…when stocks should go down to their ultimate bear market low.”
WRONG! The correction in stocks ended at 3 Eastern time today! I guess all you doomers didn’t read the amazing employment report! 9.7% – no one was expecting that. Especially the doomsday squad here.
Back to rally mode gang!
Mr. Bonner,
“a tiny island in the middle of the Pacific.” …
tell her to get out of there as fast as possible, before Global Warming drowns it under 50m of sealevel rise …
Yea sure. *yaaawn*
Tea, cupcakes, anyone ?
Your analysis has been, and is, rock solid, Mr. Bonner … however, if you’re going to follow it from day to day, Harry will have a lot of field days … I’m with you, that is rather very bearish on the whole thing, but I did buy (and sell) yesterday evening … it could have gone down, but if it would have gone down, as it has been going down the last 3 days (yesterday until 9 o’clock), the Dow would be at zero by the end of the month … and that is not only very implausible, it is also no fun
… “real economy” and “stock market” only correlate from time to time … Keynes might have been a lousy economist, he was a keen trader … “the market can remain irrational longer than … etc.”
I think the Dow will drop to the 8200 level by April, then Climb back to the 11,000 by June 2011.
“One does not climb a mountain without skinning ones’ knees and drawing some blood”
(We’ve been climbing that mountain since the 1980′s)
Harry must be still trying to recoup all his losses from the 08 crash…