Hang onto your hats. It's getting windy out there. Stuff is blowing all over the place.
Oh, that's not wind! That's a giant fan.
Well then, that must be why this "stuff" stinks so bad.
What stuff?
How about the Dow Jones Industrial Average falling more than 1,000 points from multi-year highs reached only a few weeks ago?
Or that the Dow has nosedived 5%, ever since the fateful morning last week when we found out that polls don't mean anything, that Republicans don't have memories like elephants, and that Obamarama is still the game we're playing?
Or that the Nasdaq - you know, that tech bellwether index that a lot of analysts believe is our economic canary in the coalmine - is down 10.6% (technically in "correction" territory) since reaching its highs back in late September? Or that it's down 5.5% since the elation, I mean election?
That's not only stinky stuff; it is scary stuff.
Supposedly the reason the market is going down is that we're nearing the fiscal cliff and may be heading over it. But that outcome doesn't worry me.
The Next Stock Market Crash
Article Index
With the Fed Out of "Bullets," A Stock Market Crash Will Really Hurt
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The Next Stock Market Crash Will Be Bigger Than "Black Monday"
Friday was the 25th anniversary of Black Monday. On October 19, 1987 the Dow Jones Industrial Average fell 508 points, or a mind-numbing 22.6%.
How bad was it?...
Let's put it this way, if it happened today the Dow would drop 2,965 points on the session to finish at roughly 10,158. You can imagine the depression.
Now you know why they call it "Black Monday," even though it occurred in a sea of red.
In absolute or percentage terms it was the largest one-day drop ever-- beating the 13.6% drop on the worst day of the 1929 crash.
But then again, the 1929 crash was caused only by human beings. The 1987 event, on the other hand, was largely computer-driven. Of such is progress made!
For British observers like me, Black Monday was memorable as being the first business day after the Great Storm, the first hurricane to hit the British Isles since 1703.
The relief at not having lost a third of the British Navy, which happened on the previous occasion, made Black Monday seem a minor hiccup. I actually bought some shares as the U.S. markets opened, and was delighted to see that they closed at a higher price than I paid!
There was also the satisfaction of hearing about a rather smug ex-colleague, who had received a large payout from the bank where we had worked (no such payout came my way, alas) and had invested it and margined 50% in the U.S. market.
Alas, blessed by Fortune though he was, he was awakened at 1:30 am London time by a margin call for $700,000. I always felt it was something of a fitting recompense for greed and creepiness to authority.
Well, I have news for you....
How bad was it?...
Let's put it this way, if it happened today the Dow would drop 2,965 points on the session to finish at roughly 10,158. You can imagine the depression.
Now you know why they call it "Black Monday," even though it occurred in a sea of red.
In absolute or percentage terms it was the largest one-day drop ever-- beating the 13.6% drop on the worst day of the 1929 crash.
But then again, the 1929 crash was caused only by human beings. The 1987 event, on the other hand, was largely computer-driven. Of such is progress made!
For British observers like me, Black Monday was memorable as being the first business day after the Great Storm, the first hurricane to hit the British Isles since 1703.
The relief at not having lost a third of the British Navy, which happened on the previous occasion, made Black Monday seem a minor hiccup. I actually bought some shares as the U.S. markets opened, and was delighted to see that they closed at a higher price than I paid!
There was also the satisfaction of hearing about a rather smug ex-colleague, who had received a large payout from the bank where we had worked (no such payout came my way, alas) and had invested it and margined 50% in the U.S. market.
Alas, blessed by Fortune though he was, he was awakened at 1:30 am London time by a margin call for $700,000. I always felt it was something of a fitting recompense for greed and creepiness to authority.
How the Market Crashed
Of course, those whose trading lives don't extend back to 1987 doubtless feel that it can't happen again.Well, I have news for you....
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Prepare to Profit From the Next Stock Market Crash
The notion of a stock market crash is a terrifying thought for most investors.
But it shouldn't be. After all, stock market crashes, properly played, can be just as profitable - if not more so - than bull-runs.
Of course, the trick to profiting from stock market crashes is predicting them.
That's where I can help. You see, a relatively simple analysis shows that the Dow Jones Industrial Average has gotten ahead of itself. More than that, it's giving a pretty clear signal about where the blue-chip benchmark is headed.
Let me explain ...
Remember, it wasn't so long ago - February 1995 - that the Dow first passed 4,000. That was thought to be a pretty high level at the time, as it was almost 50% higher than the 1987 peak.
The Dow closed yesterday (Monday) at 11,043.56, which is inconsistent with economic growth prospects.
That is, nominal gross domestic product (GDP) in the second quarter of 2011 was up 105% from the first quarter of 1995. So if you assume that the stock market over time should follow national output, then a middling level for the Dow today would be about 8,200 - more than 2,500 points below the present level.
And keep in mind that that's a middling level - not a bear market.
If you want an idea of how far the Dow might slump in a bear market, you can take the 777 at which the index stood in August 1982 - before the great bull market began - and inflate it by the progress of GDP since then. If you do that, you get a bear- market target of about 3,600 for the Dow.
Incidentally, a few years ago I met Kevin Hassett, the AEI scholar, who along with James Glassman wrote a book in 1999 called "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market." He's a very nice guy. I made a bet with him that the Dow will reach 3,600 before it gets to 36,000. He's teased me about it since saying I lost my chance, but it looks as though I may get him yet.
But it shouldn't be. After all, stock market crashes, properly played, can be just as profitable - if not more so - than bull-runs.
Of course, the trick to profiting from stock market crashes is predicting them.
That's where I can help. You see, a relatively simple analysis shows that the Dow Jones Industrial Average has gotten ahead of itself. More than that, it's giving a pretty clear signal about where the blue-chip benchmark is headed.
Let me explain ...
A Market Mismatch
Despite any recent losses the stock market is still extremely high by historical standards.Remember, it wasn't so long ago - February 1995 - that the Dow first passed 4,000. That was thought to be a pretty high level at the time, as it was almost 50% higher than the 1987 peak.
The Dow closed yesterday (Monday) at 11,043.56, which is inconsistent with economic growth prospects.
That is, nominal gross domestic product (GDP) in the second quarter of 2011 was up 105% from the first quarter of 1995. So if you assume that the stock market over time should follow national output, then a middling level for the Dow today would be about 8,200 - more than 2,500 points below the present level.
And keep in mind that that's a middling level - not a bear market.
If you want an idea of how far the Dow might slump in a bear market, you can take the 777 at which the index stood in August 1982 - before the great bull market began - and inflate it by the progress of GDP since then. If you do that, you get a bear- market target of about 3,600 for the Dow.
Incidentally, a few years ago I met Kevin Hassett, the AEI scholar, who along with James Glassman wrote a book in 1999 called "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market." He's a very nice guy. I made a bet with him that the Dow will reach 3,600 before it gets to 36,000. He's teased me about it since saying I lost my chance, but it looks as though I may get him yet.
A Matter of Motivation
The stock market may be significantly higher than it was in 1995, but I assure you our economy is no better off.To continue reading, please click here...
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