How Low Can We Go?

excerpt from Obama To the Rescue
by John Brown
October 06, 2008

Regardless of government action, we feel that the recession will be both severe and long lasting. The resulting fall in corporate earnings will be reflected in future stock prices. In light of this, we urge investors to be wary of claims that U.S. stocks are cheap.

It is worth remembering that prior to the stock market crash of October of 1929, the Dow had peaked 381 earlier that same year. It was not until some three years later, when severe recession and then depression took hold, that the Dow reached its low of just 42, a fall of some 90 percent from its 1929 highs.

In a historical context, the Dow’s recent fall from 14,164 to some 8,200 (a decline of just over 40%) does not necessarily indicate that stocks are cheap. Today, a 90% fall would bring the Dow down to a level of 1,416!

This economy and stock market are looking eerily similar to the 1929 market. The only difference is that today, our fundamentals are much worse than in 1929.

With that in mind, sit tight in a diversified mix of cash, gold and Treasury bonds/bills and/or Treasury funds. Not that I particularly like cash or Treasuries....these are just the best of the worse.

------------------------------------------------------ Click on chart to enlarge