Parallels between Dow and Japan Options

[Oasis]

People are saying the Dow will drop to around $4k...I disagree, I actually think it will dip below $3500 and won't recover. Things always turn around, but not this time IMO

Look at Japan, they hit $39k in 1989...they're still waiting for a recovery. Think it's at $7k now

What caused that meltdown? A real estate collapse and banks holding a mountain of bad debt. Sound familiar?

[impala454]

What makes you think so?

[dauss]

What makes you think so?

No one has tackled this yet, so I'm going to give it a shot. This is what I believe and I can't predict the future, but this is what leads me to believe that the Dow will be testing a new bottom before this recession over. When will we know if March 9th was the bottom of the recession? Probably in 30 years from now after we have studied the data for years.

Why are we here in the first place? The main cause that started this whole cascade across the economy is the housing market. Sure inventory may be going down, housing starts are improving, but home prices are still falling in a majority of the markets. Thousands are "underwater" on their mortgage, and even if they refinance, they may still have to refinance once again later down the road.

The results from the Supervisory Capital Assessment Program (aka the "bank stress tests") have revealed in essence, that 10 of the 19 banks tests are insolvent. Propping up these "zombie" banks is exactly what Japan has done and we are well on our way to a “lost decade”. These banks need to fail. With the new Mark to Market rules which allow banks to decide a value to their assets, it has helped banks post up better results than expected, however it is unsustainable. Another thing is that the results from the stress test (BoA needing $33.9 billion, Citigroup needing $5.5 billion, etc) is that the capital requirements suggest that the amount of money needed will help sustain the bank until the end of 2009. Who knows what will happen in 2010.

With the bankruptcy of Chrysler and most likely that GM will follow, will have serious repercussions throughout the entire economy. Chrysler to slash nearly 800 dealerships, and GM axing another 1100. GM to idle their plants for at least a month to reduce inventory, no good new here either. Propping up these dealerships is also a terrible idea because that isn’t the way that capitalism works. Inefficient companies fail, and better more efficient companies take their place.

The unemployment rate is still on the rise. With the latest numbers that just came out, is showing that the number of layoffs are slowing, however the number of new people wanting to collect employment rose, and the number of people collecting it now has set the 15th straight monthly record. We are finding out that this recession is hurting a lot of people, and Americans are saving more money than ever before. Linens and Things and Circuit City are no longer around, and the discount retailers are now finding more business, but people are only buying the necessities. I believe back in February when the unemployment was still 7.x%, if you had factored in all the people who have jobs, but aren’t getting enough hours and looking for another job, the real unemployment rate would have been over 14%. With employment still on the rise, it will make it more difficult for people to pay their mortgage on time and could see more foreclosures.

With the economy in severe contraction, inflation may not be a problem, even seeing some signs of deflation, but when the economy does improve, all the stimulus money that was dumped into the economy so suddenly will need to pulled out as quickly or we’ll suffer hyper inflation.

This latest rally, which is holding on to the gains since March 9th, but there have been so many “Bear Market Rallies” of 30% or more over the decades, they only to find the bottom to be tested again and again, not recovering for at least several years later. The explosion in the markets could just be buyers now finally getting back in because stock prices are “fair value”. However, even though the US markets have gained 30%+ from the bottom back in early March, other markets have seen 50% improvements.

[impala454]

With the bankruptcy of Chrysler and most likely that GM will follow, will have serious repercussions throughout the entire economy.

Just had to throw this in there.. GM went bankrupt, DOW went up nearly 100 pts and closed at > 8500.