Thursday, March 5, 2009

Dow 4000 amid a depression comes closer to reality after today's drop of 281 points on Dow

The prospect of a Dow 4000 amid an economic depression came closer to reality today as the financial markets prepared for tomorrow's jobs report that will show the worst employment losses since the 1940s.

The Dow today was off 281 points to 6,596 points. The S&P sagged below the important 700-point floor to 682 and the Nasdaq succumbed to lows below last November's levels. Now all three indices are below November's lows.

While economists and financial analysts love to debate the premise, the financial markers are a key barometer of what is to come. Yesterday's Wall Street Journal column by Harvard professor Barros cited in this blog showed irrefutable research that financial markets often have foretold depressions.

Investor confidence in 2009 is gone. Now it is all about safety. And people with money on the sidelines know that there will be no security on Wall Street for the duration of the Obama administration and a Pelosi-led house.

A Dow 4000 used to be laughed at, just as two decades ago a Dow 10,000 was considered crazy. But we reached the summit. Now we are going to experience the bottom.

If you are still in the market, your losses are for good. You can take your money out for security and earn a little in money market funds, but you have to face the reality that your money is not going to come back. Might as well protect what you have left and learn to accept it.

Things are only going to get worse, with a Dow headed below 5000 and a recession that is headed now toward a depression.

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