Thursday, July 3, 2008

Bad News For The 4TH


The Dow closed down 1% yesterday and is officially 20% below its record high… the textbook bear market. The Nasdaq followed suit and is in official bear territory as well. The S&P 500 is “just” 19.4% off its high.
So what does that even mean? Well, aside from 2008 earning an asterisk or footnote in the pages of U.S. market history, it means that worse times are likely ahead. Historically, markets rarely rebound after first breaching bear market territory. Data varies, but the typical U.S. bear market falls 29-33% below its high and takes an average 1-1.3 years to return to prebear market levels. And these averages, we hasten to add, don’t include the mother of all bear markets -- the Great Depression (shares declined 86% then and took around three years to recover).
And like worse bear markets before it, almost everyone is getting pinched. Driven by high energy prices, a weak dollar, falling home values and crumbling financials… this particular bear market hurts more than just your 401(k). For example:
31% of Americans have canceled or shortened their planned Fourth of July celebration because of rising fuel costs, says a CNN poll this morning. According to the survey, 72% of respondents said gas prices have caused changes in their daily lives -- 30% said those changes were “major.”
Gasoline, in American terms at least, is becoming inhibitively pricey. In fact, the dollar’s decline has caused almost everything to be noticeably more expensive… except home prices -- the No. 1 source of equity for the average American. As we learned last week, home prices are down an average 15% over the past year.
Want a cheap loan to help offset these tough times? Forget it… under typical bear market conditions, the Fed’s low rates would allow consumers to pick up some cheap money. But that assumes the nation’s lenders are in the fiscal shape to be extending inexpensive lines of credit… which ain’t happenin’ either. Just last month, we noted U.S. mortgage rates were at an eight-month high, averaging only 0.5% lower than in 2007. Just can’t catch a break these days, whether you're an investor or not.

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