This Bear Market
October 26th 2008 16:46
So far the DJIA is down near 33% from its high last October |See Chart). It's been brutal. Some say we have lost $10 Trillion! I suspect it's not over yet. If I had to guess at an eventual bottom, I'd be looking forsomething close to 5,000 on the DJIA.
Richard Russell writing the Dow Theory Letters (by subscription only) reminds us that when the yield on the DJIA falls below 3,5% the market is skating on thin ice. This market peaked below 2%; clearly overvalued.
We are now trading at 8.379. |With dividends of $323 the yield is back below 3,5%. It is currently trading at 3.85%
I remember the bear market from 1968 to 1974. At the final bottom in 1974, the yield was over 6% and the DJIA was trading at or below book value. Pundits keep comparing this economy to the Depression, saying it's the worst economy since the '30s, which leads me to believe that we will see that 6% yield again. Russell writes,
So my 5,000 figure is not so outlandish. The good news is we've lost almost 6,500 points; only 3300 more to go. My fear is we'll drag it out. Have a big rally from 7,200 to 10,000 and then fall to 5,000. That's what bear markets do. They want to totally demoralize you. Right now people are looking for a bottom so they can pick up bargains. At a real bottom, few have any money to pick up bargains and most don't ever want to have anything to do with stocks again.
Richard Russell writing the Dow Theory Letters (by subscription only) reminds us that when the yield on the DJIA falls below 3,5% the market is skating on thin ice. This market peaked below 2%; clearly overvalued.
We are now trading at 8.379. |With dividends of $323 the yield is back below 3,5%. It is currently trading at 3.85%
I remember the bear market from 1968 to 1974. At the final bottom in 1974, the yield was over 6% and the DJIA was trading at or below book value. Pundits keep comparing this economy to the Depression, saying it's the worst economy since the '30s, which leads me to believe that we will see that 6% yield again. Russell writes,
...this bear market could end with the Dow yielding an old-fashioned bear market high yield of 6%. The total dividend pay-out on the Dow is now $323. Assuming no dividend cuts (a risky assumption), the Dow would have to decline to 5383 to produce a 6% yield.
So my 5,000 figure is not so outlandish. The good news is we've lost almost 6,500 points; only 3300 more to go. My fear is we'll drag it out. Have a big rally from 7,200 to 10,000 and then fall to 5,000. That's what bear markets do. They want to totally demoralize you. Right now people are looking for a bottom so they can pick up bargains. At a real bottom, few have any money to pick up bargains and most don't ever want to have anything to do with stocks again.
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