Al Capital

Asset Securitization Crisis: The Butterfly Effect

Strictly speaking, the "Butterfly Effect" describes predictable non-linear systems, albeit ones that can be catastrophically affected by very small changes in some factor (the effect was discovered by noting results from roundoff errors in computer modeling of weather, and explains why weather cannot be forecast more than a few days in advance).

What is happing in the economy is quite the opposite, it is the result of a catastrophically large change in credit markets and resulting capital deflation (deflation creates further positive feedback causing credit to shrink further). That being said, an optimistic projection for the general market bottom would be 7500 for the Dow, or roughly 2002 levels. However, if things go badly, we could see a bottom at 4000-4500. There is a small chance that the national banks can avert this disaster, however, the risks remain extraordinarily high.

Remember this, if you are using the word "hope" in your description of investments (e.g. "I hope the market improves"), then you are not investing, you are gambling. An investor factors in the risk.