How low can the market go?
The Dow has taken more dramatic dives this week, once again raising the question of where the bottom is. Jeremy Hobson takes it up with investment specialists in New York.
A trader on the floor after the morning bell at the New York Stock Exchange Nov. 20, 2008, in New York City (Mario Tama/Getty Images)
More on The Economy, Wall Street, America's Financial Crisis
TEXT OF STORY
Tess Vigeland: If 400- and 500-point swings are the new normal, as we saw today, then it is, then it's going to be very difficult to answer the question that keeps popping up in this market era--How low can it go? Today the S&P 500 fell to its lowest closing level since April of 1997. The Wilshire 5,000 is down more than 50 percent from its high last October. Marketplace's Jeremy Hobson peers into the crystal ball from New York.
Jeremy Hobson: There aren't a lot of investors willing to make predictions right now. They don't want to shoot too low and scare the markets. And they don't want to sound too Pollyannish. Peter Schiff, president of Europacific Capital, is a known doomsayer. The trouble is, he's been right about a lot. Here's his prediction for the Dow.
Peter Schiff: In 1980, the Dow was at one ounce of gold. And I certainly think it can do that again. Right now, the Dow is worth about 10 ounces of gold.
Schiff says that could happen if the Dow drops to 5,000 and gold jumps to $5,000 an ounce, as investors flee to safety against inflation caused by all the bailout spending. And he says no stocks will be safe from a dramatic drop in consumer spending.
Schiff: And I think a lot of U.S. companies are going to go out of business, and many of them that don't are going to dramatically downsize to reflect an American population that is much poorer and that spends a lot less money.
Charles Peabody of Portales Partners isn't quite as bearish. Still, he says his clients are fearful.
Charles Peabody: I think what you're seeing is a growing removal of participation in the markets, which means they become thinner and less liquid. And the thinner and less liquid they become, the more volatile, and that's very scary.
Peabody chalks up this week's losses to doubts about the government's ability to solve the crisis.
Peabody:The marketplace knows that there are embedded losses in the system, and the question is how are you gonna apportion those losses.
He says investors want the government to bear the greater burden. So the Treasury's about-face on the bailout last week sent confidence on Wall Street plummeting.
In New York, I'm Jeremy Hobson for Marketplace.
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From Austin, TX, 11/25/2008
How about a National Debit Lottery Teleathon? We could phone in pledges to see Paulson and others perform variety acts. As tote board rises call in pledgers win tax breaks and even total tax forgiveness. Big income players have more incentive to play! Hey if millions of people pay to text in votes for reality TV shows and game shows, why not?
From Austin, TX, 11/23/2008
The markets have been inflating artificially for the last 15 years. When millions of people pour money into the small number of investment options available in their 401(k) and all of those funds are going long, it creates pressure for the funds to keep increasing their long positions even when the stocks are overpriced.
Now that bubble is bursting along with all the others and we'll be lucky if it doesn't go below the levels of 15-20 years ago since the US is fundamentally much weaker now than it was then.
Those who moved some retirement money to short positions or moved into treasuries are okay but people who leave their money long in their 401(k) will be lucky to get it back before they retire. My 401(k) doesn't even offer a way to put the money into safe treasuries or cash. Every option requires >1% annual fees on your savings. What a rip-off.
From Minneapolis, MN, 11/22/2008
The answer to how low the market the market can go is zero. And that's where the majority of stocks are headed as we enter a period that will make the Great depression look like a period of great prosperity.
From Fort Worth, TX, 11/20/2008
End of day sell offs are occuring mainly because of redemptions that funds have to do for clients wanting 'out'. My portfolio has gone down so much that in cumulative terms it has gone below the total investment in nominal dollars I have done over the last 15 years. I was sold the great spin of investment for the 'long term' whereby I have lost more than I put in while the managers and experts coated in teflon made their cut. I am cashing out and will put my savings in cold hard cash, which I hope will not go down so much that it will be at least worth the paper it is printed on after another 10 years when I retire. Who knows, we may soon have a hopeless deflationary situation scenario where there won't be any buyers left in the market to buy dirt cheap stocks.
From PA, 11/20/2008
My husband and I have a solution to the daily end-of-the-trading-day market sell off: early dismissal. Just close the market early. (yes - said tongue in cheek)
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