Oct 9, 2008

How Low Can it Go? DJIA Tanks Again

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Despite the pumping of $700 billion to bail out U.S. financial institutions and the Fed's coordinated half-point discount rate cut, investors went on another selling spree late this afternoon, and the Dow Jones industrial average closed down 679 points, or approximately seven percent.

The DJIA has lost 5,585 points, or almost 40 percent, since its last high of 14,198 on Oct. 9, 2007.

Some analysts blame today's losses on the return of short selling after a three-week ban that the US Securities and Exchange Commission lifted late on Wednesday night. While this might tempt some skeptical investors from the sidelines and add liquidity to the markets, I have my doubts about the level to which we can attribute today's losses largely to short-sell speculators.

Besides - if there is a rush of short-sellers, this also means that there is a great deal of investors expecting that conditions will continue to get worse, not better. If investors believe that the stock market is approaching its nadir, we would have seen a flurry of speculators going long and betting that stock prices will soon rise.

Personally, I am not moving from the market - we have already lost the better part of $30K in retirement savings (not to mention about $20K in home equity), and I see one of two scenarios happening: a) the current implosion runs its course and the market begins to creep back upward; or b) the entire economy is headed down the proverbial toilet, and any dollars I managed to extract would be as worthless as the 1923 Papiermark of Weimar Germany.

Of course, I might need those worthless dollars to start a fire and cook my dinner of canned beans - or to stuff in the cracks of my makeshift Hooverville shanty to keep out the winter's cold - if the economy keeps heading in its current direction. Of course, at least I would not be concerned about term life insurance if I were a hobo.

Think not? There is already a Seattle version of this Depression-era phenomenon: the so-called "Nickelsville", named after Mayor Greg Nickels by critics of his administration.

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