Daily Investment Interpretations

October 22, 2008

2008-10-22: Another day of (even bigger) pullbacks. The NASDAQ fell 80.93 points (4.77%) to close at 1,615.75, the Dow shed 514.45 points (5.69%) to end up at 8,519.21, and the S&P dropped 58.27 (6.1%) to 896.78. After spiking to 81.45, the VIX closed at 69.65. So what happened? Apparently, it was gloomy earnings forecasts for the 4th quarter rather more than 3rd-quarer earnings, along.with downbeat news from around the globe. This morning, Todd Harrison published this sobering assessment of what's happening, and of what might be in store for us: The Other Side of the Trade: Bear Trap!. Meanwhile, oil rose $0.62 to $67.37, while gold dropped again to $735.20, along with other falling commodity prices. (At least, this eases inflationary pressures.)
    The real question is always: what's next? Are We Headed Toward Another Great Depression? Or only a nasty recession? As the charts show, so far, the markets haven't fallen below their lows on the 10th and 16th of October. They may tomorrow, but tonight, they're still afloat. 
    With respect to a Great Depression, the governments of the United States and the rest of the world are doing everything in their power to avert such an outcome... are doing the opposite of what the United States did that brought on and prolonged the Great Depression of the 1930's. (I suspect that we're lucky that an expert on the Great Depression, Dr. Ben Bernanke, is the Chairman of our Federal Reserve.) On the flip side, the hole we've dug for ourselves appears to be significantly worse than it was in 1929, and there's no assurance that we're near the bottom, since an economic downturn can feed upon itself, and can confound the process of recapitalizing ourselves.
    Will the markets will continue to fall tomorrow, or will they right themselves before they penetrate the October 10th low?