Could the Dow Sink Another 50% by 2012?

This past Friday, the Dow closed at 8017, its fourth consecutive week gain. Since the Dow set a 6,447 low on March 9th, it has rallied over 24% with heavy volume. Over the last 20 trading days since March 9, average daily volume was 7.2 billion, 16% higher than the average volume from January 1, 2009 until March 8, 2009 (Source: Yahoo Finance). Life is good. The general consensus is that the worst is over and we're seeing the start of a brand new bull market. But is it really?

As Harry Dent, New York Times bestselling author of The Roaring 2000s and The Next Great Bubble Boom, pointed out in his new book The Great Depression Ahead, the year 2009 will be the beginning of the next long-term depression and the initial end of prosperity in almost every market. He forecasted that the three massive bubbles that have been booming for the last few decades – stocks, real estate, and commodities – have all reached their peak and are deflating simultaneously. It is the perfect storm: the peak of Baby Boomer spending cycle collides with the oil and commodity in last 2009 – 2010. This coming depression will come not from this crash or even from the bursting of the commodity bubble, but from natural demographic and technology cycles that occurs every 80 years. He predicted that the Dow could hit as low as 3,800 in mid-2012. In other words, it could be down more than 50% from today’s level. If you use its all time high of 14,164, set on October 9, 2007, as a base, then the number could be 73%.

Other than natural demographic and technology cycles, I can think of another four reasons that could potentially sink Dow in the short term:

1. Mass Unemployment Numbers

The US Labor Department on Friday reported that employers eliminated a net total of 663,000 jobs last month as the national unemployment rate jumped to 8.5 percent -- the highest level in more than a quarter-century. Net loss of 5.1 million jobs since December 2007, almost two-thirds of them in just the past five months, is more than 3-million potential job creation proposed by Obama.

Worst yet, an index of services activity shrank for the sixth straight month in March, according to the Institute for Supply Management (ISM), and at a faster pace than expected, as job losses mount. About three quarters of Americans work in service-providing industries such as hotels, retail, education and health care.

2. Potential Commercial Real Estate Problem

As unemployment goes, so goes commercial real estate. This Friday, the Wall Street Journal reported that U.S. office vacancy rate nationwide rose to 15.2% from 14.5% in the previous quarter, and will likely surpass 19.3% over the next year.

Companies struggling to cut costs dumped a near-record 25 million square feet of office space in the first quarter, driving vacancies up and rents down. Just like homeowners, those real estate companies who owe more on their mortgages than their properties will go under. And worse yet, it is really difficult to get financing these days.

3. Credit Still Tide

Even though the Financial Accounting Standards Board (FASB) relaxed accounting rules for banks on assets this week, which gives them immediate balance sheet relief, banks still need to improve their capital ratios. The spread between high quality corporate bonds and Treasuries is still way over 5%, and in the double digits for high yield bonds. Smart money knows that economic mess will generate record downgrades and defaults which might last quite a while.

4. Potential Credit Default from East/Central Europe

Remember Latin America, Mexico, Russia and Asia's financial/credit crises before? Eastern and Central Europe needs to roll over $400 billion in foreign debts this year, equivalent to a third of total GDP, raising concerns that it may need a massive rescue program from the IMF and the European institutions, according to Telegraph.co.uk. Foreign creditors quickly withdrew from the region because of mounting fears of a debt crisis. A second wave of countries might need to be rescued after earlier bailouts of Latvia, Hungary, Ukraine, and Belarus -- as well as Iceland and Pakistan.

The recovery shape could be V, W, U or even L. After almost 20 years since Japan's Nikkei 225 set all time high at 38,915 on December 29, 1989, this Friday it was 8,750, still 77% off. The most recent and closer to home example is the NASDAQ.

Nobody knows what could happen tomorrow. However, everyone can certainly construct a well-diversified core portfolio with a few low cost ETFs. From a total of 829 ETFs, I compiled a list of the biggest and most liquid 30 ETFs below: First I selected ETFs with net assets over $1 billion, then picked the top 20 by assets, then pick top 20 by volume, then de-dupe and came up following list (click to enlarge):

Source: Yahoo Finance

If you think emerging markets are the future, iShares MSCI Emerging Markets Index (EEM) or a much less expensive alternative Vanguard Emerging Markets Stock ETF (VWO) is the way to go. For bond and inflation protection, iShares Barclays TIPS Bond (TIP) is my choice. If you think China will save the world, then iShares FTSE/Xinhua China 25 Index (FXI) should be on your watch list. If you truly believe a long depression is ahead, you can profit from it by owning UltraShort S&P500 ProShares ETF (SDS) from time to time.

Disclosure: I have long positions in EEM, EFA, QQQQ, SPY, TIP

Comments

[Dave Wrixon:]

I think another 50% is just about given and long before 2012.

By 2012 it will be much higher simply because the Dow is denominated in dollars.

If you are based in Shanghai and denominated in Yuan even a three fold increase by then may not mean very much.

We are about to enter a highly inflationary era. Everything will be measured against constantly shifting datums. This is going to be a very confusing time for those who think in terms of Black and White.

Apr 05 07:27 AM

[morph366:]

Long term forecasting is very risky and I am not sure that I would rest too much of my case on Mr. Dent's credibility having glanced again at his earlier book on the Roaring 2000's
Several factors including demographics may be coming together in a perfect storm to create a secular downturn in the global economy which could lead to a deflationary spiral. But, as was made clear at last week's G20 the policy makers are throwing trillions of dollars at the problem in a desperate attempt to reflate asset prices.

You mention the shape of the recovery and it would seem that if your pessimistic forecast is correct we might be looking at a W shape, but where the last stroke up on the W character is absent.
In other words a strong rally that could last for a year or two followed by another big slide and then, after having debased the monetary system so much there is no firepower left to ignite another rally.

Apr 05 07:49 AM

[aquaculture:]

Good points.
At the end of THIS tech cycle, the weakest fundament of the DOW is a primary energy source (upon which all others are based) who's EROI -energetic return on investment- has become negative, if you define it smartly.
We remember the "America is addicted to oil" phrase.
Time is energy and the clock is running backwards.
50% off could very well be, if current trends continue.

Apr 05 08:30 AM

[investor88:]

Good article to remind the bulls to be alert and restrained. The antidote is not holding forever but STOP LOSS.

Apr 05 08:31 AM

[aquaculture:]

So until there is a 'cleantech revolution' (see eg. the Merryll report), no long term appreciation of most asset classes can be expected.
Of course this also creates enormous opportunities for new wealth creation.

Apr 05 09:00 AM

[Old Trader:]

Given Germany's, and to a lesser extent, France's reluctance to engage in any extensive stimulus plans, I wonder how much of the G-20's announced $1+trillion is jawboning, and how much will actually be spent.

If, in fact, that amount IS spent, will it be done in dribs and drabs, as the situation becomes increasingly dire, and the various actors come to realize that fact? Its my understanding that the stimulus plan(s) are meant to "jumpstart" the global economy, much as a defibrillator jumpstarts a heart. I suspect that if 3 times the proposed amount was spent, but done gradually, in fits and starts, the hoped for effect will be greatly diminished.

Please note, I'm not commenting on the "rights" and "wrongs" of any of the proposed plans; merely addressing the logic behind them, as articulated by their proponents, and questioning whether the expectations are reasonable.




On Apr 05 07:49 AM morph366 wrote:

> Long term forecasting is very risky and I am not sure that I would
> rest too much of my case on Mr. Dent's credibility having glanced
> again at his earlier book on the Roaring 2000's
> Several factors including demographics may be coming together in
> a perfect storm to create a secular downturn in the global economy
> which could lead to a deflationary spiral. But, as was made clear
> at last week's G20 the policy makers are throwing trillions of dollars
> at the problem in a desperate attempt to reflate asset prices.<br/>
>
> You mention the shape of the recovery and it would seem that if your
> pessimistic forecast is correct we might be looking at a W shape,
> but where the last stroke up on the W character is absent.
> In other words a strong rally that could last for a year or two followed
> by another big slide and then, after having debased the monetary
> system so much there is no firepower left to ignite another rally.
>

Apr 05 09:12 AM

[campo:]

Immigration is going to soften the effect of the baby boom bubble. Because of mass retirements, the unemployment picture is not going to worsen in the long term. Some valuations; real estate in particular, have got to come down just to be rational. The baby boomers are going to lead active retirements. They will buy boats. They will buy motorhomes. They will gamble. They will move into old folks homes. They will die. Pick your stocks accordingly.

Apr 05 09:28 AM

[notsosmart:]

nobody knows anything & nobody can be believed.think for yourself to the best of your ability.even thats hard with so much lying & phonyness.

Apr 05 10:09 AM

[antiquary:]

"As Harry Dent...pointed out"?

One cannot "point out" an opinion. Pointing out something is reserved for facts, and facts only. Fifty years ago it may be possible to say that Mr. Dent pointed out these things, assuming they come true, but certainly not today. You have two strikes against you in my mind when you can't use language correctly.

Mr. Dent's conclusion is suspect, as well, and smacks of the Rush Limbaugh effect-- of taking extreme positions for the sake of getting attention. (The fact that his books have sold many copies says very little in his favor; should we give Danielle Steele the Pulitzer prize for literature on that basis?) This kind of book comes out every so often, and tends to smack of the predictions of the arrival of the Rapture in A.D. 1000, A.D. 2000 and in many other years. "Surviving the Great Depression of 1990", anyone? The fact that Mr. Dent's previous books have come out more or less as these things were occurring, not several years before like Daniel Arnold's "The Great Bust Ahead" (2002), makes Dent rather like someone offering to sell you the winning lottery ticket number the day after it has been drawn.

The truth is, even if someone's worldview successfully encompasses the astounding complexity of the economy, it is an example of the best use of the metaphor inherent in the Heisenberg Uncertainty Principle. The position of electrons cannot be discovered by shining light at them because the photons affect the electrons and skew the results. Similarly, the market can't be well predicted in an era of keyword-triggered automatic trading because commentary itself skews what it is describing.

For myself, I plan to ignore the rending of garments and gnashing of teeth, and simply get on with the business of life.

Apr 05 10:58 AM

[Glen L.:]

Antiquary, good comment. I would add that risk is heightened by the unpredictability of government interventions. It's bad enough trying to predict what your own government and central bank will do, especially with the Fed and Treasury in panic mode, but when you have over 100 that can affect the markets in various ways, it becomes nearly impossible.

Apr 05 11:13 AM

[Mutual Fund...:]

Personally I don't see the Dow going down at all and certainly not 50%
If the market sunk to anywhere near the 3800 mark I can't imagine how high the price of Gold would go...

Mentioned on my web page awhile ago that I believe the Dow will settle around the 8,000 mark and I believe proceed upwards from there. It seems experts-analysts-finan... gurus can't see or predict anything past yesterday, so I believe my predictions to be pertinent.

Doug T
www.mutualfundwealth.com/

Apr 05 11:28 AM

[drbob66:]

Harry Dent? Isn't this the guy who won the "Ultimate Charlatan" Award?

www.maxfunds.com/?q=no...

Bottom line...take his predictions with a grain of salt.

As far as the rest of this article goes...it's a useful rehash of the danger still lurking in certain sectors of the economy. But it's hardly useful, since it basically concludes that the market "could go down"...or, maybe not. I would add that it "could go up"... OR it could trade sideways. I think that covers all the possibilities.

The market still has a casino-like feel to it...but certainly has stabilized a bit. The VIX just barely nudged below 40 on Fri, and is still below it's 200-day MA, which is good...but until it gets closer to 30 or so, I'll have tight stop-losses in place to protect any recent gains.

Apr 05 12:20 PM

[john redmond:]

You cannot distort the natural laws of economics and beat up on the engines of wealth production without dire results for America's great unwashed mob. Uneducated people will continue to follow their Rock Star politicians over the edge of the cliff while laughing all the way like the Pied Pipers children. However those who keep their eyes on the reality of things will do quite well in the next few years while the "little people" will pay a terrible price.

Apr 05 12:28 PM

[Mr. Mutt:]

Google...Celente 2012. this will confirm this theory about the further collapse of the market.

Apr 05 12:57 PM

[prudentinve...:]

Ignoring all the hype and complex analysis, and looking simplistically at a long-term chart suggests that S&P at about 750 +/- falls nicely on a smooth trend curve.

Since things revert to their mean, my guess (and only a guess) is that the stock market will oscillate around 750, between 600 and 900 on the S&P500 for the next two years. Occasional outbursts of wild optimism or pessimism may take it out of this range on either side, but my guess is that such passionate outbursts will be brief, on the order of a few weeks each.

Apr 05 01:03 PM

[irondoor91:]

Where would the price of Gold be if the Dow went down to 3800? Probably around $650, which is where it is headed after making a series of lower highs and lower lows since the top. Dow 3800 is the reasonable next target in Elliott wave terms, after a stab at 10,000 at the end of the current uptrend, of course. The bottom for the Dow, sometime in the period 2012-2014, could be as low as 500 which is generally the low of 1974. All mass manias always completely correct their blowoff 5th waves.

Of course, society as we know it will be completely changed by then. It is difficult to predict what type of governments will exist around the world, or even here in the US.


On Apr 05 11:28 AM Mutual Fund Wealth wrote:

> Personally I don't see the Dow going down at all and certainly not
> 50%
> If the market sunk to anywhere near the 3800 mark I can't imagine
> how high the price of Gold would go...
>
> Mentioned on my web page awhile ago that I believe the Dow will settle
> around the 8,000 mark and I believe proceed upwards from there. It
> seems experts-analysts-finan... gurus can't see or predict anything
> past yesterday, so I believe my predictions to be pertinent.
>
> Doug T
> www.mutualfundwealth.com/

Apr 05 03:17 PM

[Gtarras:]

I had to go through all this negative hogwash to find out at the end that the author is actually long the market. LOL! Why do SA editors allow such nonsense?

Apr 05 03:20 PM

[PROXIMO:]

I will be absolutely astonished if the Dow isn't down at LEAST 50% from today's levels in this calendar year. Ditto the other averages. Also, please don't mistake me for some Elliott Wave or Dow Theory dupe, as I'm not too big on astrology or voodoo.

Apr 05 04:29 PM

[Mad Hedge F...:]

Hold your horses! There is a great debate raging in the markets right now over the stubborn persistence of the volatility index (VIX) remaining over 40%. Is it still too risky to go back into the market? Are we going to new lows? Is the next big move an updraft or a downdraft? Part of the confusion springs from a misunderstanding of what the VIX is. It is just a mathematical guess about how big the next move in the market will be. A 40% VIX implies that one out of three days will see a 2.25% palpitation, and once a month we will suffer a 4.5% gyration. You can have the market drop 10%, rise 11.1%, remaining unchanged, but still generate a tremendously high VIX. The equation doesn’t care what the direction is. VIX unfairly picked up a bearish connotation because of the panicked rush by long side only investors to buy downside protection in falling markets, driving put implied volatilities through the roof. This is why investors associate a high VIX with falling markets. In the end, this debate can only be resolved in one way, and that is to the downside. Smart hedge funds are now shorting out of the money calls on VIX. VIX will crash when markets go to sleep, as they inevitably will. Be careful what you wish for. Traders don’t pull down million dollar salaries playing “Solitaire” on their computers.

Apr 05 06:02 PM

[fredissy:]

Hey Ying Yang.....That the market may lose 50% of its present value by 2012 does not preclude the posibility that it will gain on a rally in the meantime.....Duh!

Apr 05 07:53 PM

[Northstar10000:]

Dow's going to 16000 not because of growth. When money markets default and the gov can't cover them all, money will panic into stocks.
No place to run no place to hide.

Apr 05 08:23 PM

[Teutonic Kn...:]

irondoor91,

I like your prediction of the Dow going down to 500 sometime in 2012-2014, if indeed we get there, as the Mayan calendar folks predicted an Apocalypse, and thereafter there dawn a New Beginning on 21 DEC 2012.

Admittedly, you would appear to be even more pessimistic than yours truly.

Accounted for inflation, my take is that the Dow at 500 represents the total evaporation of American stock equity. Most, if not all stocks will trade in the penny and sub-penny range. At the point the world probably would have come to a stand-still.

I hope you are wrong.

Teutonic

On Apr 05 03:17 PM irondoor91 wrote:

> Where would the price of Gold be if the Dow went down to 3800? Probably
> around $650, which is where it is headed after making a series of
> lower highs and lower lows since the top. Dow 3800 is the reasonable
> next target in Elliott wave terms, after a stab at 10,000 at the
> end of the current uptrend, of course. The bottom for the Dow, sometime
> in the period 2012-2014, could be as low as 500 which is generally
> the low of 1974. All mass manias always completely correct their
> blowoff 5th waves.
>
> Of course, society as we know it will be completely changed by then.
> It is difficult to predict what type of governments will exist around
> the world, or even here in the US.

Apr 05 09:44 PM

[@TexasER:]

Northstar: this doesn't make sense. If money market funds collapse, it will be caused by a run...cash withdrawals.

And if they break the buck and hand back, say $0.80 on the dollar, those people will not be keen to move back to equities.

They'll probably buy physical assets. Which will get quite expensive.


On Apr 05 08:23 PM northstar10000 wrote:

> Dow's going to 16000 not because of growth. When money markets default
> and the gov can't cover them all, money will panic into stocks.<br/>No
> place to run no place to hide.

Apr 05 11:52 PM

[Dave Wrixon:]

That would be a first!


On Apr 05 08:23 PM northstar10000 wrote:

> Dow's going to 16000 not because of growth. When money markets default
> and the gov can't cover them all, money will panic into stocks.<br/>No
> place to run no place to hide.

Apr 06 01:04 AM

[toobad41:]

You use Harry S. Dent to set us up with fear tactics then you tell us to buy long in ETF's! What a pitch man. You just don't make any sense at all. Why not start off with buying long in ETF's and then tell us about why we should be wary about the future. That does not make any sense either.

Apr 06 08:18 AM

[Hot Richard:]

Dollar denominated...so it doesn't really matter.

Here's a statement. I don't think the Dow will return any real increase in value for an investor between now and 2012. Oh, but it will probably be above 10,000...but you'll have lost value from today.

Apr 06 08:58 AM

[LariAnn:]

IMHO, all it will take is a fairly major natural disaster (catastrophic hurricane in oil-producing zone like the Gulf of Mexico) or political action (nuke test by Iran) and the markets will be thoroughly roiled. The world economy is not stable by any means. Momentary euphoria aside, all it takes is one good reality check, and like the results of a 2 x 4 smack to the head, people will wake up and smell the burnt coffee. At that time, hope you have reduced or eliminate your debts and have hard assets or goods of lasting value that you can fall back on. . .

Apr 06 09:47 AM

[Mark Bern:]

I suspect (hope) that the author is providing investment possibilities to execute at the bottom in 2012. Otherwise, going long now with expectations of a 50% drop would not make much sense.

The author did offer us a couple of short ETF options, though, I think there could have been more, given his thinking.

Apr 06 09:54 AM

[Vox Rationalis:]

"1. Mass Unemployment Numbers"

Keep using backward-looking data to determine when the forward-looking market will bottom.

"2. Potential Commercial Real Estate Problem

This will have a big impact on which of the Dow components?

"3. Credit Still Tide"

Which is impacting which Dow components?

"4. Potential Credit Default from East/Central Europe

This will adversely affect which Dow components in what way?

"The most recent and closer to home example is the NASDAQ."

Right. The companies making up the NASDAQ composite and those making up the DJIA are SOOO similar.

Apr 06 03:56 PM

[catlady:]

No, most baby boomers will not be able to retire. This is the end of retirement as we have known it for a relatively short period in our history. They will not buy boats. They may move in with their children or take in boarders.


On Apr 05 09:28 AM campo wrote:

> Immigration is going to soften the effect of the baby boom bubble.
> Because of mass retirements, the unemployment picture is not going
> to worsen in the long term. Some valuations; real estate in particular,
> have got to come down just to be rational. The baby boomers are going
> to lead active retirements. They will buy boats. They will buy motorhomes.
> They will gamble. They will move into old folks homes. They will
> die. Pick your stocks accordingly.

Apr 06 05:36 PM

[Rattlesnake...:]

I am reading a number of fairly optimistic comments here this evening. I think that we Americans have been conditioned to be optimists, and this is good. However, now it is time for us now to be realists by necessity. I do not believe that Americans have recieved full disclosure of the true nature and severity of the banking crisis that has shaken the world. Perhaps it is best that most don't know. Public lynchings are best left to the legendary times of the old West.

By the time the world economy turns around, in maybe fifteen years, the world will be an entirely different place with many large corporations owned by various government entities, some of these entitites yet to be invented. Because of this, and because there is no way to win on Wall Street, except maybe to day trade and be lucky, it would behoove most formerly successful investors to hold cash until the value of stocks is completely deflated, or until they can understand and find a suitable investment, like farmland, to shelter them from risk. I would plead with you all to be cautious and think of your loved ones best interest in all the trades or transactions you make. Also, please consider the potential for rising crime and the steps that you may need to take to protect yourself and your family. The sad truth is that we have been victimized by scoundrels, and many of them are still in positions of influence and power. Good luck to all.


On Apr 05 11:52 PM @TexasER wrote:

> Northstar: this doesn't make sense. If money market funds collapse,
> it will be caused by a run...cash withdrawals.
>
> And if they break the buck and hand back, say $0.80 on the dollar,
> those people will not be keen to move back to equities.
>
> They'll probably buy physical assets. Which will get quite expensive.
>

Apr 06 07:16 PM

[Glen Bradford:]

My little tidbit, is that screening ETFs using yahoo finance isn't a good idea.

seekingalpha.com/artic...

Glen

Apr 06 08:48 PM

[Bjarne Jensen:]

Harry Dent said the DOW was going to 36,000 in the Next Great Bubble Boom. So, what does he know now about the market going down?

Apr 06 10:41 PM

[Stephen Fra...:]

yes, of course it COULD. but then again, we COULD all be dead by then or I could be a millionaire. But I don't think any of those three are very likely.

Apr 06 11:19 PM

[sickofthehype:]

As soon as you brought up Harry Dent you lost any credibility you might have had to start with.

So I assume you're all-in at this point, shorting the market right?

Apr 07 01:07 AM

[dpz:]

I don't trust a guy selling a doomsday book. Think for a minute. Even if he thought things were becoming more positive, would he state it publicly and contradict his own book? No ...

Apr 07 02:19 AM

[godcanhelp:]

too many uncertaincy (dollar,policy change,war,)or maybe goverment put money support the market,or they controll the gold market,you never know what kind stuff happen between them.we are just zilch.its sad.are we still in usa

Apr 07 04:07 AM

[wes mantooth:]

And if asked when the Dow was at 14000 where gold would be at 7000 you would say "OMG it will easily be triple what it is now". If the Dow were to drop by another 50% it would mean deflation is still king and gold would most likely be lower too.


On Apr 05 11:28 AM Mutual Fund Wealth wrote:

> Personally I don't see the Dow going down at all and certainly not
> 50%
> If the market sunk to anywhere near the 3800 mark I can't imagine
> how high the price of Gold would go...
> Doug T
> www.mutualfundwealth.com/

Apr 07 07:02 AM

[EdG:]

I think most people, especially the professionals have their portfolios biased to the positive or increasing stock market. It is instructive that the stock market is still only fair value and this is at last reported (high) earnings. Most companies (and people) still have too much leverage. It makes sense to me that the de-levering cycle will result in stocks being cheap at last reported earnings so I conclude that there is still a large decrease on the way.

Apr 07 08:38 AM

[stonedinvestor:]

No doubt with near total economic collapse comes the worlds biggest wall of worry for stocks to climb. It is not until we truly feel " wow, it did work, all this stimulus has staved off a depression!" that stocks will go down again. Until then earnings will be viewed one of two ways; oh my god they have swung from a total profit to a total loss! Or, well that wasn't as bad as some said it will be. For this earnings cycle, I am fully in the Not That Bad Camp. What will get interesting is the number of companies that refuse to give guidance- will this lead to less speculation and a leveling out of returns? Or greater suspicion by the public- and a generation that moves on without the stock market? The bigger questions for 2012 is just who will be investing? Will this become an ever smaller club? Or can buy and hold work again? For every person who confidently comes on tv and says the obvious- buy and hold has not worked for the last ten years, there is an investor at home faced with a singled digit stock that used to be worth much more. If you gobbled up Ford at $1-$2 and you held to 2012 I wonder how you would come down on that argument? Perahps up 30- Times! It would seem now more than ever buy and hold SHOULD work, but no one is saying that- not a one, that's why I'm starting to think that way.~stoney

Apr 07 09:18 AM

[Jason Tillberg:]

I'm with Dent and now Soros, also Ron Paul as we are in for a slowdown of at least 10 - 15 years.

No one mentioned peak oil in this forecast either.

1340's all over again?

Apr 07 12:45 PM

[Conan the B...:]

Sure, it could double from here, lose 50% and we could wind up here.

Apr 07 01:39 PM

[aarc:]

So many factors that will contribute to the downside.

How about this?

Most companies have suffered during the tech meltdown of 2000 to 2003. Likewise, the rally from 2003 to 2007 was hesitant and very frustrating to many investors. Hence, when the next round of bubble bursting such as the housing bubble and consumer spending bubble; investors did what they have to do - sell, sell, and sell. The lessons of 2000 to 2003 tech bubble burst is simple too fresh a would to be ignored. Likewise, corporations did what they have done before, they layed off as much employees as they can, this time much more than what they previously did - perhaps much more than what they should have done.

There is a saying: "fool me once, shame on you; fool me twice, shame on me". Investors have learned their lessons and would do anything to prevent being "victims" again of the market bubble bursting.

Now, there is one major thing that has been left behind.

During the 2000 to 2003 meltdown which resulted in Dow Jones plunging by 50%, the SnP by more than 60%, and Nasdaq a little over 80% - corporations have learned a lot on how to survive such a massive downturn.

Except for the banking, finance, insurance, and real state sectors who took too much risk during the housing bubble; most corporations have already been "forged in the test of fire" during the 2000 to 2003 period. They already have the knowledge, the experience, and many of them have already instituted conservative balance sheet practices that has prepared them for this market downturn.

Meaning - most corporations have already prepared themselves for this downturn using their experience of 2000 to 2003 markets meltdown and used the opportunity of 2003 to 2007 rally to beef up their balance sheets just in case another market meltdown of equal or greater magnitude than that of 2000-2003 happens again - which it did and as we have witnessed and are experiencing right now.

And most likely, they did most of their actions during the Oct-Dec 2008 meltdown in EXCESS. Once burned, they become overly reactive to this current meltdown.

Consumers, likewise, who did not react negatively to the 2000-2003 market meltdown, are now reacting massively negatively to this current market meltdown. Some of which are now buying guns and ammo and stocking provisions, others are even predicting WWIII.

Meaning - this 18 months of panic selling is already over-done!

In 1929 to 1932 which resulted in a massive 89% haircut for Dow Jones and corporations going bankcrupt left and right; most companies were not ready and has never experienced such a radical change in the economy. Thus the Dow Jones took more than 10 years to recovery. Consumers, likewise, suffered the shock of their lives.

This time around; we have already experienced the 2000-2004 downturn and most of us have already prepared for another downturn specially Warren Buffett whom we know very well did not participate during the "bear rally" of 2003 to 2007. Ever wonder how many "Warren Buffetts" did not participate either - no wonder the rally from 2003-2007 was so anemic.

All of us also knows what happened during the 1929 to 1932 Great Depression. This alone prepres us mentally for the tasks ahead.

Unlike 1929 to 1932; it is not so far fetch that any further sell-offs for the stock markets in the near future have already been priced-in and well expected by most market participants and thus they will be able to act rationally rather than go into panic mode if and when the next major sell-off happens again.

This prolonged preparedness by many investors to catch the next sell-off, in itself, can prevent the market from going lower than the last low of March 2009.

Likewise, the recovery from this "Mini-Depression" is going to be fast and furious if we can avoid a wholesale corporate bankcrupcies equal to or greater than that of the Great Depression.

You can't get up fast when you get hurt and got crippled during the fall.

However, when you have already anticipated the fall and have already prepared yourself for the fall - you don't get hurt so badly and thus be able to rise and run again relatively quickly.

I intentionally took the round-around repetitive process in order to be able to drive the points home.

Apr 07 03:37 PM

[Mad Hedge F...:]

Not likely. Today I spoke to my old Morgan Stanley boss , Barton Biggs, who is so bullish that he believes we are only one third to one half of the way through the current stock market rally. Barton, voted best international strategist for seven years, and one of the founding fathers of investment in emerging markets (with some pushing from me), now runs Traxis Partners, a major global macro hedge fund. This earnings season will be a disaster, with forecast S&P 500 earnings at $40-$55 or lower. But hedge funds are still net sellers of assets, according to well placed prime brokers, and most still expect a retest of the lows at 666 in the S&P, or new lows in the 400’s. The capacity for the industry to take on new risk is therefore huge. Also encouraging is three consecutive monthly improvements in the Purchasing Managers Index (PMI). He sees this year as a replay of 1938, when a huge rally ensued after a long bear market, with 1938 valuations to boot.

Apr 07 05:36 PM

[aa44aa:]

Harry Dent is an idiot, reading his books is enen more idiotic

Apr 07 07:58 PM

[Marianthi:]

While I think that we are not done with the downside yet, I don't trust this Harry Dent guy. I keep hearing radio commercials mentioning his name that talk about preparing for the next great depression, and suggest handing over one's assets...Justified pessimism aside, I just don't like or trust fearmongering...Also, ultra ETFs should be used with caution for short term trades NOT long term investments.

Apr 07 09:17 PM

[Marianthi:]

While I think that we are not done with the downside yet, I don't trust this Harry Dent guy. I keep hearing radio commercials mentioning his name that talk about preparing for the next great depression, and suggest handing over one's assets...Justified pessimism aside, I just don't like or trust fearmongering...Also, ultra ETFs should be used with caution for short term trades NOT long term investments.

Apr 07 09:17 PM

[RG2009:]

Since some of you mentioned gold versus the price of the DOW, i'll chip in my opinion. DOW at 3800 = Gold aroud 4000. I'm uncertain whether DOW will actually make it to 3800, i would assume more like 5000. Whichever the case, since i am a believer of hyperinflation, i feel gold will reach 3500 by the end of 2011.

Apr 08 08:01 AM

[buoy:]

Harry Dent needs a chill pill.

Apr 08 08:14 AM

[Sonia:]

There has been so much negatism that I'd guess we've seen the bottom, but there are steps we can take to protect ourselves. My son, whose house is half paid for and had a 5.25% mortgage on 15 years, has refinanced at 4.8 for 30 years to reduce his payments in the event that he loses his job. With the much lower payments he could deliver pizzas and not lose his home. Make a game of "how fast can I pay off the credit cards?" Buy quality stocks in essential industries that pay stable dividends, and reinvest the dividends. When you walk a middle course between gloom and euphoria, life is good!

Apr 08 12:13 PM

[bricki:]

Harry Dent is clearly pandering to the current market sentiment with his books. Not a bad strategy; he seems to have found a way to make money in both good and bad markets.

Since he was woefully wrong the first time I'd surely avoid taking his current book as the only source of information this time around.

I'm not saying we will go up in a straight line from here or anything like that. My feeling is that we are going to be in a secular bear market for the next decade and anyone looking to make money had better be damn nimble.

Apr 09 02:00 PM

[lrd:]

Guys-

Who are you kidding? Pick your heads up from out of the holes!

There's a 50% chance the DOW will crash this year!

There's a 25% chance the Government, ,yes the US Gov't, will collapse in the next 12 months.

Listen to the news and read the papers. Cities and states are going to start falling like dominos soon. And shortly after that, well you guess.

Apr 09 04:30 PM

[User 392712:]

HS Dent called for a Depression to start in 2008, he made that prediction in a book he wrote in 1993. The books called "The Great Boom Ahead" p.g. 188. I thinks that's a good 15 years ahead of time!


On Apr 05 10:58 AM antiquary wrote:

> "As Harry Dent...pointed out"?
>
> One cannot "point out" an opinion. Pointing out something is reserved
> for facts, and facts only. Fifty years ago it may be possible to
> say that Mr. Dent pointed out these things, assuming they come true,
> but certainly not today. You have two strikes against you in my
> mind when you can't use language correctly.
>
> Mr. Dent's conclusion is suspect, as well, and smacks of the Rush
> Limbaugh effect-- of taking extreme positions for the sake of getting
> attention. (The fact that his books have sold many copies says very
> little in his favor; should we give Danielle Steele the Pulitzer
> prize for literature on that basis?) This kind of book comes out
> every so often, and tends to smack of the predictions of the arrival
> of the Rapture in A.D. 1000, A.D. 2000 and in many other years.
> "Surviving the Great Depression of 1990", anyone? The fact that
> Mr. Dent's previous books have come out more or less as these things
> were occurring, not several years before like Daniel Arnold's "The
> Great Bust Ahead" (2002), makes Dent rather like someone offering
> to sell you the winning lottery ticket number the day after it has
> been drawn.
>
> The truth is, even if someone's worldview successfully encompasses
> the astounding complexity of the economy, it is an example of the
> best use of the metaphor inherent in the Heisenberg Uncertainty Principle.
> The position of electrons cannot be discovered by shining light at
> them because the photons affect the electrons and skew the results.
> Similarly, the market can't be well predicted in an era of keyword-triggered
> automatic trading because commentary itself skews what it is describing.
>
>
> For myself, I plan to ignore the rending of garments and gnashing
> of teeth, and simply get on with the business of life.

Apr 10 12:58 PM

[Paulharris:]

There's an essay about why Elliott Theory is about as good as astrology. Go to orvinfive.blogspot.com. You will probably like it.


On Apr 05 04:29 PM PROXIMO wrote:

> I will be absolutely astonished if the Dow isn't down at LEAST 50%
> from today's levels in this calendar year. Ditto the other averages.
> Also, please don't mistake me for some Elliott Wave or Dow Theory
> dupe, as I'm not too big on astrology or voodoo.

May 08 01:47 PM

[sickofthehype:]

Dent is a perma bear and you've obviously lost some credibility since you wrote this stupid article. Wake up and get ready for inflated EVERYTHING.

May 08 08:15 PM