Oh, the Yin and the Yang; the Dark and the Light of the stock market. If your stomach hasn’t churned or your heart pounded through your chest, then my guess is that you have no market exposure. If so, good for you. If you are still invested get ready for more heart-throbbing days ahead.
On Monday, February 23, the DOW index dropped another 250 points on the threat of the Fed nationalizing a bank or two. Today, February 24, the DOW shot up 236 points on optimism expressed from the Chairman of the Federal Reserve, Ben Beranke, that the recession will end by the end of 2009.
You know, history does repeat itself. After the market crash of 1929, the DOW made attempts to return to normalcy. The Democrats and history revisionists try to give free-spending President Franklin D. Roosevelt credit for America’s recovery from the Great Depression. Many analysts, however, feel that FDR’s debt-incurring programs further delayed any recovery and plunged America into an entitlement estate.
Here are some stock market facts for you to consider as you look forward to a recovery. During July, 1929, the DOW hit an alltime high for that period of 348. Three years later, in June, 1932, it had bottomed at around 43, or an 87% drop. The DOW did not reach 348 again until 25 years later in July, 1954. You read it right. It took 25 years for the DOW to get back to even keel. If it were not for World War II and America’s resurgent industrial might and the great financial sacrifice of its people, the recovery might have been much longer in appearing.
Now we come to the current crisis. Many say it cannot be compared to the Great Depression. Maybe so, because it could be much worse since the whole world economy is in shambles. But lets just look at the stock market comparisons. On October 9, 2007, the DOW hit an alltime historic high of 14,164. Sixteen months later (less than a year-and-a-half), it has shrunk 50% to 7,115 (February 23 close).
Despite Beranke’s optimism there is not much positive economic data to support his positive outlook. But investors and retirees or soon to be retirees are grasping for straws to breathe as their heads sink below a sea of unending debt and horrible economic forecasts. Obama’s and Congress’s draconian efforts, just like FDR’s will likely fail or prolong the pain of recovery. Time, of course, will bear the truth and reality of today’s decisions. For many, however, time is not on their side.