The Dow to 1700? This is a Depression

Even if it is an average of an arbitrary assortment of stocks which seem to be used by investors and the public as a type of Geiger counter for the current toxicicity of the country’s financial position, the Dow Jones industrial average does seem to reflect the prosperity or poverty of the nation.  As such, its trends can be analyzed, as its highs and lows are not at all arbitrary.  The percentage drop from peak to trough is thus very significant in determining the direction of the average, and by comparison, the direction of the national economy. 

First, it should be noted that we are not at the trough.  Every time an analyst says the market has “rebounded” they (used as a politically correct singular) are merely showcasing a statistically insignificant fluctuation in the daily volatility of the market.  Simply put, at any given time, people are both buying and selling stocks, meaning that the averages will rise and fall.  While some people see a fire sale, others see a bargain hunt.  Until a significant recovery is underway, be wary of anyone claiming a rebound.  Instead, we must look at the past fluctuations.  The biggest percentage decrease in the Dow can be seen at the time of the Great Depression, of 88% from peak to trough.  There have been several other significant drops since this crash, none coming close to the magnitude of the Great Depression.  In the early 70′s the average dropped aprox. 47%.  In 1987, the average dropped 31%, and from 2002 – 2004 the average dropped almost 50% due to the internet bubble.  Currently, the average has dropped 53% from the peak.  The downturn has also lasted longer than all of the other down turns with the exception of the Great Depression, and we are pushing that time frame as we speak. 

Without trying to be a doomsdayist, I am suggesting with a fair degree of certainty that the Dow Jones industrial average will definitely fall to 3000, but will more than likely bottom out around 1700.  1678 would be my bottom call, to put an exact number on it.  And as far as time goes, this will happen within the next two years, unless we still have not seen a significant rebound, which could indicate an even more prolonged Depression. 

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