A Long Term Perspective
June 18th 2008 00:00
The hard thing about getting a feel for this market (DJIA) or any market, is the ability to step back and get a long-term perspective.
Case in point: I just read an article in the Telegraph.co.uk in which Morgan Stanley warns of 'catastrophic event' as ECB fights Federal Reserve By Ambrose Evans-Pritchard.
The clash between the European Central Bank and the US Federal Reserve over monetary strategy is causing serious strains in the global financial system and could lead to a replay of Europe's exchange rate crisis in the 1990s, a team of bankers has warned.
Did you see the word "crisis" there? So what effect did the "crisis" have on the 1990s' DJIA? For that you have to Google for a long-term chart of the Dow. I found a moonthly chart at The Privateer that covers the period from 1973 to 2008 (See Chart).
The market recovered from the 1987 and over the next seven years more than doubled, with only that small drop of 20% during Gulf War I.
The average had been knocking on the door of the 3000 mark that summer. It stopped a fraction of a point away, with twin peaks of 2999.75 on July 16 and July 17. Then, prices began to slide, ending with an Oct. 11 low of 2365.10.
The point of this whole article is that history may repeat, in this case the "crisis", but the market may not react the same way. It didn't pay to be bearish last time!
For another perspective see Jesse's Café Américain
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