How Bad Will It Get?

By Jim Wiandt

Here is some perspective on where we stand in the history of bear markets.

My alternate title to today's blog was "Short Ban Lifted, Market Tanks." I'm afraid you were wrong on this one, Mr. Hougan. It's OK, we are used to it.  And I repeat: "XLF—next stop $10." That sounded CRAZY even yesterday ... but that was before XLF was trading into the *urp* $13's.

Honestly, though, unless you think the entire U.S. economy is going to be headed into depression, you're going to have to be buying past the capitulation point here. And there could be more to come. I just said Dow 7500 as it broke below 10,000. And we're within about ONE THOUSAND POINTS of that (we'll hit it today at the rate we're going and the way Europe and Asia are looking).

It's nuts. I like that it's come on fast and furious, because ultimately I think that's going to be a stabilizer. But, uh, WOW. I don't care what anyone says, I've never felt this. It's more than the market, it's the money.

And as Matt Hougan says in today's blog, until the TED spread narrows, we'll have BIG BIG problems. Matt—you should start a "spread watch" on the site to see us out of the crisis. It's all about the money.

Because in market terms, believe it or not, what we're going through is NOT that bad when viewed in the context of market history. I got this from John Serrapere, and it's super-interesting. It's a look at historic bear markets and where we are right now.

By the way, John Serrapere sent this to me a couple days ago: The S&P 500 has lost another 9+% and (brace yourself) it's trading down another percent and a half in premarket trading this morning. So change -37% to -47% or so, which puts us within a couple of percentage points of the worst-ever bear market declines in history, aside from that one (you know the one) that took us down a cool 89%.

So we either find a floor pretty soon here or start screaming like little girls (oh, sorry, we're already doing that).

23 Bear Markets
START	END	MONTHS	CHANGE
9/5/1899	9/24/1900	12	-32%
1/12/1901	11/9/1903	34	-46%
1/19/1906	11/15/1907	22	-49%
11/19/1909	9/25/1911	22	-27%
9/30/1912	7/30/1914	22	-24%
11/21/1916	12/19/1917	13	-40%
11/3/1919	8/24/1921	21	-47%
9/3/1929	7/8/1932	34	-89%
3/10/1937	3/31/1938	12	-49%
11/12/1938	4/8/1939	5	-23%
9/12/1939	4/28/1942	31	-40%
5/29/1946	6/13/1949	37	-24%
12/13/1961	6/26/1962	6	-27%
2/9/1966	10/7/1966	8	-25%
12/3/1968	5/26/1970	18	-36%
1/1/1973	12/6/1974	23	-45%
9/21/1976	2/28/1978	17	-27%
4/27/1981	8/12/1982	16	-24%
8/25/1987	10/19/1987	2	-36%
7/16/1990	10/11/1990	3	-21%
3/23/1996	10/8/1998	31	-23%
3/1/2000	10/9/2002	30	-49%
AVERAGE		19	-37%
10/9/2007	10/7/2008	12	-37%

Data courtesy of John Serrapere, our "Active Indexer"

OK everyone, take a deep breath. These are a few weeks we'll remember forever, that much is for sure. By the way, I did scale back into the market yesterday with a good portion of two years' worth of sidelined money. Friedman is still 50% in cash.

Oh, and here's a funny story (or painful one depending on your perspective). The national debt clock that they run in New York RAN OUT OF DIGITS. They had to take out the space where the dollar sign was when we recently hit $10 trillion. I'd seen it and Don forwarded it to me, and I definitely thought it was worth mentioning here.

Again, per my blog, can we get someone, anyone, in either party, who believes in balancing the checkbook? I found it profoundly embarrassing to live in the richest country in the world and be running ENORMOUS debt to the rest of the world. Just seems like a basic. A little vision, a smidgeon of responsibility, a bit of competence. That's all I'm looking for.

Strap on your market seatbelts!