In the wake of S&P's downgrade watch of General Motors (NYSE: GM), which sent its shares down 31% to a 58-year low, the Dow lost another 679 points today. Exactly a year ago, it was levitating at 14,164 -- now 5,585 of those points are gone. In the process, $9.3 trillion in market value has evaporated. And that loss of market value shows no signs of stopping.
A week ago, I suggested that investors who need their funds in the next six years should give some thought to cutting their losses. Since then, the Dow has lost 2,252 points. As a reminder, during the Great Depression, the Dow lost 89% of its value. If you end up losing 40% of your investment instead of 90%, you may look back and think that you were wise to have salvaged something.
Last Friday, the White House signed an $850 billion bailout bill. That bill was pushed as a way to stop a catastrophe. With $3.2 trillion in stock market value lost since then, some might argue that the bill's benefits were oversold. Meanwhile, the short-term cash market seems to have stopped working as the TED spread peaked at 4.14%. I've suggested that a cull and capitalize plan for the U.S. banking system is essential for restoring the functioning of the credit markets. Let's get this started.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in GM securities.
Comfort Zone Investing: Getting beyond today
Stock picks and pans for troubled times: RIMM, ED, ISRG, GLW, LEA, SLB, GOOG ...
Is Berkshire Hathaway better than S&P Index?
Reader Comments (Page 1 of 1)
10-09-2008 @ 9:28PM
Ray said...
Even with the market going down - there's a lot of people making money with wise investments.
There's a company online that provides investment advice on stocks and options no matter on your skill level. Apparently they are doing very good with the falling market. GoToGuy recently did a post on this company. http://www.gotoguy.com/?p=436
The website for the investment advice company is www.tradewithpros.com
10-09-2008 @ 10:43PM
nbergercra said...
Dont panic the Dow will level off at 7000. Look at the historical data the graph is ez to read. This correction had to happen because these crooks could not sell any more vapor given the bubble. The system is set up to keep robbing robbing widows,orphans, and now retirees foreever. Want to solve the banking crisis. have the government refi everyone at 1.5% the rate of federal funds. Let the bankers go out and work for a living. Once the loans are refid if the bankers want to remain in the business with their own investors they can or go out and find another job. People wake up we do ot need bankers, lawyers, and politicians for any reason if the rules are set up for all. my two cents
Of course only owner occupied homeowners would get this benefit and legal citizens. Everyone should be entitled to funds at the current federal rate. Why pay a banker a 500% markup on our own money. Government can contract to the lowest bidder to open the envelope sent monthly.
10-10-2008 @ 1:16AM
Blabrmouth said...
When you think of the college funds, retirement funds, wedding funds and home purchase funds just getting killed you realize that once Wall Street & Washington fix their problems, main street is going to need a hand as well!
10-10-2008 @ 1:16AM
cfolounge said...
The real indication in my mind of how bad our economic situation is lies in unemployment.
If the damage spreads beyond financials then we've got problems. Even if your portfolio is severely impacted, you can always look for a higher paying job or get a second job (if you want to). It's when you can't put food on the table - that's when you panic.
10-10-2008 @ 8:46AM
Charles Clark said...
We fail to understand why Americans are unhappy. They voted for a Republican president in 2000 and 2004. We reject the claims being made in several foreign nations that Americans are so ignorant of their own history that they do not understand the consequences of voting Republican. Republicans brought us the Great Depression of 1929 and excepting Dwight Eisenhower (1952-1960), every Republican president since 1929 has crashed our economy. Republican Nixon gave us 12% inflation, wage and price controls, gas rationing (you were allowed to only buy gas on certain days and were limited to 5 gallons per purchase) and the stock market crash of 1973, Reagan gave us the stock market crash of 1987, homeless and unemployment marches, record deficits etc. The first Bush got thrown out of office because his economy was so bad ("Its the economy, stupid" was Democrat Clinton's winning campaign slogan). All Democrat presidents excepting Jimmy Carter gave us great economies. Clinton left us a great economy, a balanced budget and a 559 billion dollar surplus. SEE http://en.wikipedia.org/wiki/Bill_Clinton Americans were upset with Clinton's great economy so they voted Republican and are now getting what they voted for. Why so unhappy? It makes no sense to us. You get what you voted for - fools.