In a blog where I do not get paid for my opinions and have no risk in being wrong about the future, I will make a bold prediction based on current and past events.
First, look at the link below to see how the first Great Depression (we're in the second one now) showed how the 1929 crash led to a 60 percent increase in an optimistic recovery and then seriously crashed again by nearly 80 percent in 1932.
http://www.marketoracle.co.uk/images/1929-stock-market-crash-dow-chart-image005.png
The link shows the reason for the first crash, the reason for passing Glass-Steagall. This, also, was the reason fro Great Depression II--the current Great Depression hidden by food stamps, food banks, unemployment insurance, social security, medicare, medicaid, etc.
The second crash is based on sovereign debt default in Europe, one of the reasons a small party like Adolph Hitler's Nazi party was able to rise to power in Germany in the early 1930s.
Not to be a "gloom and doomer" but the same sovereign wealth default contagion is spreading, with Spain's ratings recently cut by Fitch. Look for another hit on the stock market this week. In the end, my prediction is another crash at nearly 80 percent of the peak. That would put the Dow below 2,000 at its lowest point. Many suggest below 6,000 and that might be optimistic.
However, don't expect this to happen anytime soon. As you see in the chart from Great Depression I, the decline is gradual. The question will be how this society and others react to the stock market decline. Can you say "Tea Party"? Knew you could. Let's hope more sensible heads prevail.
Remember folks, it's only money and those wide-screen TVs, blue-ray players and high-def DVD collections should keep us happy during a tumultuous economic decade. Also, alot of people went to the movies during the Great Depression I to alleviate their spirits.
I leave this blog post with a quote from Hal Holbrook's character in the movie WALL STREET (look for Wall Street 2 in theaters this fall).
"Man falls into an abyss--sees nothing staring back at him. That's when man finds his true character and it keeps him from falling into the abyss."--Lou Mannheim in Wall Street.
That goes for men and women.
Until next time....this is Robert Michaels.
2 comments:
OK, so I am curious, given how bearish your prediction is. How are you handling your money (both retirement and short term savings) in light of all this? Are you retaining any market holdings? Are you 100% cash? Is your money held in a bank? In an investment firm? Under the mattress?
Chris,
Good question. While I have a 401K, I am currently at a guaranteed 3percent return, whether the market does better or worse.
Also, I've hedged this a little bit with my wife's 403b account--she's still on a little more aggressive scale but didn't make much more when the Dow went to 11,000. Now, it's back down to the point where I moved to the guaranteed account.
Granted, if I put the money into a guaranteed account in March 2009, I would have been burned, but I didn't because where was the money going to go anyway.
Being that I'm still relatively young, I'm not even worried about the market tanking to 6,000 (which many predict) because that's about where I'll get back into a more agressive mode.
Even if it did drop to 2,000, it will have that much further to improve in the next 25 to 30 years.
I can't speak for people near their retirement ages, other than to say industrial REITs and annuities are good plays.
Oh--and one other thing--"Gold, Jerry, Gold!"
This said, I'm not a financial analyst, and I don't play one on T.V. either.
Thanks for the question. Any comments and/or questions are greatly appreciated.
Robert
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