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]

I think by the end of the year it will start recovering. No clue where rock bottom is though. IMHO this is a good recession so far. Should take care of and trim the fat some, get housing prices back where they should be, credit back where it should be (i.e. not given out like candy). I just hope I get to keep my job all the way through it (rooting for China to start launching people and start another space race)

Here's some interesting info. Most of us (well, all of us really) are too young to remember or care about past recessions. They're a normal part of our country's economics. Here's the list of past ones, and the duration (in months).

Sept. 1902-Aug. 1904 23
May 1907-June 1908 13
Jan. 1910-Jan. 1912 24
Jan. 1913-Dec. 1914 23
Aug. 1918-March 1919 7
Jan. 1920-July 1921 18
May 1923-July 1924 14
Oct. 1926-Nov. 1927 13
Aug. 1929-March 1933 43
May 1937-June 1938 13
Feb. 1945-Oct. 1945 8
Nov. 1948-Oct. 1949 11
July 1953-May 1954 10
Aug. 1957-April 1958 8
April 1960-Feb. 1961 10
Dec. 1969-Nov. 1970 11
Nov. 1973-March 1975 16
Jan. 1980-July 1980 6
July 1981-Nov. 1982 16
July 1990-March 1991 8
March 2001-Nov. 2001 8

So if you look at this, the average recession lasts about 14 months. with the last few fairly short ones. we've recovered 21 times so far, so I doubt this one will be much different. The Dow Jones as an index might not, but the country will be fine.

[nickluto]

You know that the dow jones industrial average isn't measured in dollars....right?

[Mommy]

That's why you don't work on Wall Street. You don't know anything.

[Mommy]

Bar graph of the last 10 days... Shows a small recovery that has been pretty consistent. These have been the most consistent days for increase since something like September.

http://money.cnn.com/quote/chart/chart.htm...Submit1=Refresh

[dauss]

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

Here's the difference though. I'll use an analogy of the real estate and financial market to a building fire.
In Japan, the building was on fire. The building collapsed and continued to burn. The building is now a pile of smoldering rubble. Japan decides to step in.
In the US, the buliding is on fire. The building is still on fire, but we have firefighters attempting to control the blaze. There's a difference. Whether the steps taken now are going to work is uncertain, but at least we're doing something.

[Mommy]

Do none of you realize that we are going through a global recession right now? Very few countries are not being hit by this recession. I can only think of one off hand and that is Brazil. Most of Europe and Asia are going through this as well. In fact, England is worse off right now than we are. They are considering completely nationalizing the banks there. I doubt our entire world is going to fall completely into poverty. As long as trade is still active among countries, there will be a recovery.

[jwttu]

so will are you still predicting the drop to 3500?

[woody]

it'll drop again in about 3-4 months

[impala454]

What makes you think so?

[dauss]

I think it will touch below 6000.

[pysex]

Do none of you realize that we are going through a global recession right now? Very few countries are not being hit by this recession. I can only think of one off hand and that is Brazil. Most of Europe and Asia are going through this as well. In fact, England is worse off right now than we are. They are considering completely nationalizing the banks there. I doubt our entire world is going to fall completely into poverty. As long as trade is still active among countries, there will be a recovery.

i hope they seriously aren't considering nationalizing their banks....

jesus christ the conspiracy theorists were right

this is the new world order


government controls banks, government controls your money, government controls you

[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]

Eh I think you guys are taking the media hype on this stuff a little too far. It seems to me the same as it was with the gas prices stuff. If I recall I think most of you laughed at me when I told you I thought we'd see gas back in the $2.50 or less range. The media hype on economic woes (or any type of "woe" for that matter) seems to amplify the effects of the situation, just by sheer panic.

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.

The Dow seems to be fine, with that ~$6500 bottom only lasting for a few days.

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.

The housing market isn't getting any worse, so I don't see how that could continue to affect anything. The banks that were going to take a nosedive because of the housing market have already done so.

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.

I don't see the bankruptcy of Chrysler or GM having serious enough repercussions on the economy to drive the Dow under $6500. Their loss in value is already calculated into the current market. Their job losses have already been anticipated. It's kind of like how people new to the stock market think "ooh the new iPhone is coming out tomorrow, I should buy some Apple stock!" but in reality that has already been figured into the price.

Inefficient companies fail, and better more efficient companies take their place.

Right, that's why bankruptcies will probably help these companies. So long as Obama doesn't step in and make some stipluations about keeping the UAW contracts intact (which would make the whole bankruptcy pointless).

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.

I don't see calculating a "real" unemployment rate based on number of hours being any kind of significant number. You can't change the way a statistic is calculated to make it look worse. Although you need to shuttup and delete that statement... the media would be all over that idea like white on rice... "adjusted unemployment rates". Reminds me of how the weather man always gives the heat index or the wind chill to try to make it sound worse.

As far as citing Circuit City and Linens & Things going down... those are companies that had performed poorly for long before this recession hit. Circuit city had been operating in the red for nearly two years when the recession hit. If you look at both of the named stores respective competitors, sure they have taken a minor hit, but are still doing very well. Best Buy and Bed Bath & Beyond posted a 30% and 13% increase in profits respectively over the last fiscal year (during the recession!). So I think your comment that people are only buying the essentials is a little unfounded. I can turn on the news and see some reporter making it look like someone can barely put food on the table, but when I go into Fry's on Saturday afternoon and the line is still 50 people long with 15 checkouts running and big screen TVs making their way out the door like a herd of cattle, I get a little skeptical of the message the media is trying to portray.

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.

I don't really follow you... the economy isn't going to skyrocket overnight, so why would consumer prices do the same? Consumer prices falling is what will help improve the economy. Not the other way around.

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.

I think it's way past calling it a "rally". It's held onto the gains for nearly an entire quarter already.

[dauss]

The Dow seems to be fine, with that ~$6500 bottom only lasting for a few days.

These extremely short term observations mean nothing. Unfortunately posting this won't help my case, but we can just look back 6 months. The Dow closing below 8000, for the first time in since 2003, was on November 20, 2008. It wasn't until February 17th, 2009 for the Dow to close in the 7500 range again, and even lower later.

The housing market isn't getting any worse, so I don't see how that could continue to affect anything. The banks that were going to take a nosedive because of the housing market have already done so.

U.S. Foreclosure Filings Hit Record for Second Month
So when foreclosure filings break two consecutive records, that's an improvement? Next week we'll have housing sales on Monday and housing construction numbers on Tuesday. A slowing decline doesn't mean improvement.

I don't see the bankruptcy of Chrysler or GM having serious enough repercussions on the economy to drive the Dow under $6500. Their loss in value is already calculated into the current market. Their job losses have already been anticipated. It's kind of like how people new to the stock market think "ooh the new iPhone is coming out tomorrow, I should buy some Apple stock!" but in reality that has already been figured into the price.

The market has been eating dismal news for the past 8 weeks, yet the indexes are still holding onto significant gains. There was a lot of optimism, but now it is fading yet again.

As far as citing Circuit City and Linens & Things going down... those are companies that had performed poorly for long before this recession hit. Circuit city had been operating in the red for nearly two years when the recession hit. If you look at both of the named stores respective competitors, sure they have taken a minor hit, but are still doing very well. Best Buy and Bed Bath & Beyond posted a 30% and 13% increase in profits respectively over the last fiscal year (during the recession!). So I think your comment that people are only buying the essentials is a little unfounded. I can turn on the news and see some reporter making it look like someone can barely put food on the table, but when I go into Fry's on Saturday afternoon and the line is still 50 people long with 15 checkouts running and big screen TVs making their way out the door like a herd of cattle, I get a little skeptical of the message the media is trying to portray.

Well when 1000+ stores close, business will be picked up from their competitors. The customers that used to shop at LNT and CC won't suddenly stop buying house wares and electronics. You’re also seeing the American consumer trading down for better value. Sales are down for JC Penny, Nordstrom, Abercrombie Fitch, Sears, Macy’s, mainly the mall stores.

So, your observation of what you have seen at a Fry’s store negates my comment about the consumer buying the essentials? My comment is based on net losses in the last fiscal year for these companies. Panasonic losing $4 billion(first loss in 7 years), Sony losing $1(first loss in 14 years), Hitachi losing $8.1 billion, NEC losing $3 billion, Toshiba losing $3.5 billion. So, if my comment is unfounded, why are they losing money when they had such great profits last year?

Consumers had about -6% saving rate for 8 years and now we’re seeing that rate at about 4.2% which was announced in March. That is a 10% swing, and considering how much of our GDP is dependent on consumer spending, I can’t see an improvement anytime soon.

I think it's way past calling it a "rally". It's held onto the gains for nearly an entire quarter already.

In the past, these bear market rallies(or perhaps this is a cyclical bull) have see resistance between the 50-70 day range of trading. Today is day 49. I can't predict the future, but I believe that the bottom will be tested again, and that whatever this may be, is unsustainable.