Thursday, February 26, 2009

For Those of You Wondering How Long Before the Dow Hits Bottom

The short answer is, it could be a while.

This graph shows the rapid growth of the Dow during the boom times of the 1990's. Much of this unrestrained uptick we know now was comprised of little more than paper wealth and speculative bubbles that had yet to burst (see: for a particularly pertinent example).

The 1980's and the 1990's were fruitful periods of stock growth whereby market indexes made substantial strides year after year. The precedent for this swelling gain, however, goes not much farther than our recent past. For example, on November 14, 1972 the average closed above 1,000 (1,003.16) for the first time, during a relatively brief rally in the midst of a lengthy bear market. Though our economy as it currently exists is far more complex and far more interconnected with world trade and sundry complications than it was during the seventies stagflation, it has only been within the last couple decades that American wealth and American well-being have been this linked closely with the stock market. As we have invested more actively in the market, taken part in 401k plans through our employers, and entrusted more of our retirement savings to the fickle nature of the New York Stock Exchange, the market has taken a role in our daily lives only rivaled by one other period in American history---the fad speculation of the 1920's that arguable greatly contributed to its tremendous crash.

Whether what we face is today indeed a mere harsh correction or a harbinger of doom no one can say. What can be sure is this. A tremendous amount of nest eggs and supplemental incomes have been already lost. Many will never return to their individual investors. Still, without meaning to seem preachy, this was the risk many took to play the game. It is written nowhere that the market is obligated to keep its value forever or that the price of any commodity or stock must remain high. If one wants to assign blame as to precisely why we are in a state of recession, there is plenty to go round and it falls on the shoulders of speculator and investor alike. Personal responsibility, or the lack of it, is the real culprit here, as is the eternal human desire to want something for nothing.

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