Yesterday, the market had a swing of over 900 points as indexes hit new lows for the year and then pushed upward to close 6% or so higher. Overnight, markets in Asia and Europe staged rallies of their own.

The stock market may march up for a while, but that can't be sustained and the odds are likely that it will crash and make new lows again before year's end.

The fiction is that the markets trade based on what they see six months into the future. Perhaps they see GDP recovering by then. Not a chance.

George Soros said yesterday that there is some chance that the world economy will enter a depression next year. That may be extreme, but a majority of business leaders and economists who want to be heard on the subject say that this is the most significant downturn of their lifetimes.

There is a view that falling housing prices are at the core of the disaster that has overwhelmed the financial structure of the country and is now hurting everything from retail sales to tech company revenue. Housing may be helped by government programs, but if unemployment hits 8% or better next year, the number of people who have to give up their homes could rise sharply. Lower interest rates do not help people out of work.

Another misconception about the future is that oil prices will continue to fall. With some OPEC nation's facing budget deficits due to crude dropping from over $140 to $55, the cartel will have to cut production to meet demand. That may mean a huge cut, but OPEC can match the drop in the global need for oil with a paltry supply.

The stock market has not stopped going down.

Douglas A. McIntyre is an editor at 247wallst.com.

Nero was a Roman emperor who was rumored to have played a lyre in his palace in July 64 while Rome burned for six days. And to paraphrase Mark Twain, history may not be repeating itself now; but it sure is rhyming. The 30 developed economies are receding -- expected to shrink 0.3% in 2009. Meanwhile, in the U.S., foreclosures are up 25% since last year and Wal-Mart Stores, Inc. (NYSE: WMT), which was thought to be the place everyone would shop in a recession, now forecasts fourth quarter earnings per share to be as much as 7% lower than analysts expected. And the S&P 500 has lost 41.4% of its value in the last year.

So why does this feel like Nero's Rome? Two things: Hank Paulson -- who has consistently made confident predictions that later proved to be wrong -- has done so again. And, Washington, which was required by the terms of the $810 billion rescue plan to report on its progress after 30 days, has missed its deadline. As I posted yesterday, Paulson admitted that his plan to save the world by using reverse auctions to buy toxic waste was DOA. But the subtext of speech was that he does not have a clue about what to do -- and he has his eye on the exit door.

Meanwhile, a special inspector -- to be appointed by Bush -- and a Congressional Oversight Panel, which was supposed to check the dictatorial powers that Paulson originally asked for, has no staff members. This means that the taxpayers do not know exactly where the $290 billion that Treasury has committed so far has been spent. Simply put, the economy is getting worse, the program to restore it is rudderless, there is no public information on how the money has been spent, and nobody is in a position to provide that information.

It's not exactly a repeat of ancient Rome. While I doubt anyone in the White House knows how to play the lyre, the global economy is going up in flames.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing, will be published by Portfolio on December 26, 2008. He has no financial interest in the securities mentioned.

October 19, 1987 was the day that the Dow fell a record 22.6% -- then a record 508 point decline. (The Dow lost a total of 21.8% during that month). By contrast, the current month is on track to end down a relatively modest 16.6%. But even though the Dow went down much more in October 1987 than it did in October 2008, it turns out that the 1987 crash preceded the economic contraction by about two years. By contrast, the October 2008 crash seems to be happening at the same time as the economy implodes.

I remember the October 1987 crash well because I was working in a consulting firm whose CEO asked a colleague of mine to come up with a list of stocks to buy. He was convinced that the 508 point decline was an anomaly that did not reflect the state of the economy. And it turns out, he was right. The 1987 crash seems to have been caused by a computer based trading program that got out of control.

By contrast, when we look back on the current economic and stock market downturn, we may see the peak as having taken place in the summer of 2007 -- that is about the same time that the Dow reached its high above 14,000 which took place in October 2007. Unlike in 1987, I would be surprised if that consulting firm's CEO told one of his people to find him stocks to buy after stocks tumbled this month.

In that sense, even though the market suffered much more in October 1987 than it did this month, I would not be surprised if the current market downturn presaged a much more painful economic contraction.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Day after day the media reports on the "reasons" that the market is moving up or down. Nobody seems to challenge these reports even though they are often patently bogus. And since the reports seem to change every day, we just get used to the idea that nobody offers a real explanation of daily market movements. So just like we simply have to accept that our portfolios are worth 40% less than they were last October, we have to accept that nobody will bail us out or even explain why the market moves up or down every day.

Yesterday, for example, there were two "explanations" offered -- both of which are silly. One was that investors were buying stocks yesterday in anticipation of a Fed rate cut, the other that investors were snapping up bargains. Yet just a little analysis suggests that both "explanations" are probably wrong. The Fed rate cut explanation makes no sense because the market has been anticipating a 50 basis point cut since last week -- if this was news why didn't the market rise last week?

The other -- that investors were snapping up bargains -- is also shaky. That's because a lower stock price does not necessarily mean that the stock is a bargain. Investors must evaluate a stock based on its price in relation to some measure of value -- such as its earnings growth or its net worth. But most analysts agree that 2009 earnings projections are not worth the paper they're written on. Some anticipate that earnings will decline 35% or more next year so P/E ratios are meaningless. And for many companies -- particularly those holding asset-backed securities -- net worth as stated on their books is a fiction that does not reflect the diminished value of this toxic waste.

Here is a frightening statistic: about 63% of people with retirement accounts have stopped contributing to them. That little nugget comes courtesy of a recent survey conducted for TD Ameritrade (NASDAQ: AMTD).

Half of those who stopped contributing to their retirement accounts cited "financial strain due to the economic downturn." Another 32% cited unemployment, while 25% mentioned health care costs, according to a company press release. Of those polled, 34% had less than $50,000 in investable assets.

Many of the people who've quit or curtailed contributing -- nearly one in four -- are aged 35 to 44, which should be prime earning years. I am not going to bore you with financial planning 101, but the earlier you start to save (absent a market meltdown), the better because over time the stock market is your friend. Lately, though, it has not been much of one.

Mulling over this survey got me thinking that whoever is elected president is going to face the gargantuan challenge of rebuilding the financial security of millions of Americans who are being forced to push back their retirement plans or who have mortgages they can no longer afford. It's going to take years for people to rebuild their nest eggs and undo the damage they have done to their credit by over-extending themselves. Many people may never be able to return to their former lifestyles.

Of course, that may not be such a bad thing. If this crisis has taught us anything, it's that people need to live within their means.

Investors who want to follow "my pal Warren" back into the market are searching for the best angles with the least risk. I have been doing the same and recently posted Fog clearing -- maybe. Clear skies -- no! GE, JNJ, MRK, PG, RTN, WFC, highlighting blue-chip dividend payers.

Last Thursday morning I had a coffee with William O'Sullivan, owner of O'Briens Pub in Santa Monica, Calif., and started quizzing him about how the recession might affect his business. He said it would probably improve. He expected some depressed and unemployed people to find refuge in his bar.

I used the occasion to bring up one of my watch-list stocks, Diageo (NYSE: DEO), the largest distiller of spirits in the world. It is the leader in the world by volume, by net sales, and by operating profit. The company produces eight of the world's top 20 spirits brands. Some of these include include Guinness, Harp, Johnnie Walker, Tanqueray, and Smirnoff. O'Sullivan believes that Diageo has a drink for everyone at price points that his customers will not balk at.

The first time I wrote about DEO was 20 months ago (see Cramer says buy Diageo, I say WAIT) when it was around $85 per share. Since that time it has reached a 52-week high of $93.12. However, I could never bring myself to invest at those levels. Well, Friday it closed at $56.86, up $0.55, on a day the DJIA closed down 312.30 to 8378.95, when almost nothing was in postive territory.

Global markets are crashing down today. Asia (Hang Seng down 12.7%, Nikkei 225 fell 6.4%) and Europe (Dow Jones Euro Stoxx 50 crumbled by 5.9% and the FTSE 100 index tumbled 5.4%) are collapsing in unison. And in the last year, they have lost 51% of their value -- destroying $29.6 trillion in stock market value. You may have noticed that stockholders are the silent majority of the financial crisis. This is the group of citizens that Richard Nixon tried to mobilize to win elections. And it's the same group that John McCain's advisor, Phil Gramm, talks about when he says Americans are Whiners.

There are plenty of corporations and financial institutions that can afford lobbyists. The clients of lobbyists don't whine -- they get bailouts. As vice chairman of UBS AG (NYSE: UBS), Gramm is one of the lobbyists that the average taxpayer can't afford, so we end up paying to bail out those who can. How much? Commercial Paper (CP) gets $540 billion; Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and American International Group (NYSE: AIG) get $322.8 billion; and the top nine banks get $125 billion to pay bonuses (since Hank Paulson did not require them to lend it out).

Even if stockholders could hire lobbyists, it is unlikely that governments would be able to come up with enough cash to reimburse us for the $29.6 trillion we've lost so far -- or for the additional $20 trillion we could lose if things keep going the way they have been. With confidence lost that governments will solve the problem, people are now trying to cut their losses before they get even worse.

That lack of confidence is what will drive global stock markets for the foreseeable future.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns AIG shares and has no financial interest in the other securities mentioned.

As has happened so many times in the last several weeks, the global markets have plunged while Americans slept. But the reason for the plunge seems elusive. Articles suggest that stock prices fall due to negative economic news. But such explanations imply that investors are surprised to learn this. And I question whether any intelligent person would be surprised to see evidence of a shrinking global economy and bad earnings.

Here's this morning's carnage. Asian markets were down more than those in Europe which have not been open as long as of this writing.The Nikkei 225 index fell 9.6% -- linked by analysts to Sony's announcement of a lower earnings forecast, Korea's Kospi (down over 50% this year) tumbled 10.6% -- attributed to Samsung's 44% earnings decline; and the Hang Seng lost 8.3%. Meanwhile Europe's major exchanges are down roughly 9%.

With the Dow set to open as low as trading limits allow -- 550 points lower, I find it striking that both the dollar -- at $1.2595 to the Euro -- and the yen -- at 92.61 yen to the dollar -- are rising in value in relation to other world currencies. Since oil is traded in dollars -- this currency strength should offset the impact of OPEC's decision to cut production by 1.5 million barrels a day. So far this theory is working -- the oil price dropped $4 a barrel after the announcement. (It couldn't happen to a nicer bunch of people.)

Without a hint of irony, the Associated Press reported that "Trailing by seven runs with seven outs left in their season, the Red Sox pulled off the biggest postseason rally since 1929. Boston staved off elimination in the AL championship series with an 8-7 victory over the Tampa Bay Rays on Thursday night when J.D. Drew singled home the winning run with two outs in the ninth."

That's right: in the midst of a market meltdown, the Red Sox pulled off the greatest comeback in playoff history since 1929, and they did it on October 16th, just 13 days before the anniversary of Black Tuesday. Coincidence? Who knows?

But given that there are a lot of people making predictions about the future of the market -- and none of them really know what they're talking about -- I'm proposing a new method. If the Red Sox come back to win the next two games and shock the Tampa Bay Rays out of their first ALCS title, then the comeback is real -- and the markets have bottomed.

But if the Red Sox break their fans hearts by losing after such a glorious comeback, then we'll have to chalk the market's modest gains of the past week up to a bear rally -- sucking in optimists only to destroy still more wealth.

Billionaire Warren Buffett, the greatest investor of our age, today gave free advice to people worried about the economy: buy stocks. Not only is he adding equities to his personal account but they are -- get this -- American stocks. In this day and age when people are diversifying their holdings between the mattress and a safe buried in their backyard, this is a shocking view.

Writing in today's New York Times, the Oracle of Omaha, pointed out quite accurately that stocks are a good long-term investment and that people who are hording cash have reason to worry since the policies of the next president will probably prove inflationary and accelerate declines in the real value of cash accounts. Equities will outperform cash over the next decade, according to Buffett, the head of Berskhire Hathaway Inc. (NYSE:BRK.A)

"Today people who hold cash equivalents feel comfortable," he said. "They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value."

He pointed out that he was getting greedy in a fearful market. That's sensible, practical advice and investors are listening to it -- at least for now. Buffett is not offering easy answers or quick fixes. He does not try to call a "bottom" in the market. In fact, the investor explains that he has "no idea" what the market will do in the short-term. Neither does any one else, and that's the problem.

U.S. stock futures were set to rise Monday morning after a Federal Reserve official pledge that the central bank would "consider every option" to restore consumer confidence, according to a report in Bloomberg News. The market was further bolstered by comments from European governments to prevent banks on the continent from failing.

On the other hand, Bloomberg News is reporting that the world's economy may be headed for its worst recession in 25 year -- if it's lucky. `The hope is that it won't become the worst unemployment business cycle since the Great Depression," economist Bradford DeLong told Bloomberg.


Here is a look at other news of interest to the markets:

• Paul Krugman -- The New York Times columnist and Princeton University professor won the Nobel Prize in economics.
• Sovreign Bancorp -- Spain's Banco Santander SA is near a deal to buy troubled Philadelphia-based Sovreign Bancorp Inc. (NYSE: SOV) according to the Wall Street Journal.
• Morgan Stanley (NYSE: MS) -- Mitsubishi UFG closed on its $9 billion investment in the Wall Street bank which gave it a 21 percent stake.
  
• Bailout -- The Treasury Department is providing some details about its $700 billion rescue, naming law firm Simpson Thatcher as an advisor.
• GM -- General Motors Corp.'s (NYSE: GM) board was cool to the idea of a merger with Chrysler LLC., according to the Journal. Meanwhile. U.S. auto sales are expected to be near a 20-year low.
• Gulf States -- Saudi Arabia and the United Arab Emerties unveiled plans to bolster their domestic banks.
• Wachovia -- Analysts expect Wells Fargo & Co. (NYSE: WFC) to sell or cut back Wachovia Corp. (NYSE: WB) investment-banking business, Bloomberg says

By almost all accounts, the defeat of the bailout / rescue bill stunned those both inside the beltway, on Wall Street, and across the nation.

Many political analysts projected that the bill would be approved by the U.S. House of Representatives by about a 80-100 vote margin. The reality: bill defeated, 228-205 and the stock market plunged a big seven zero zero and more.

Public policy analysts, professional and otherwise, will spend ample time investigating the reasons why the bill failed, but in a crisis such as this one, congressional leaders, save for reviewing their mistakes, do not have time for the stuff of graduate seminars in public policy: they need to get a rescue bill passed.

Now what?

Well first, don't panic. As George Bailey (Jimmy Stewart) said during the bank run on the the Bailey Building & Loan in the movie, It's A Wonderful Life, "Now just remember that this thing isn't as black as it appears. Now, we can get through this thing all right. But we've, we've got to stick together."

Investors and readers are no doubt aware of the benefits of the free enterprise system as practiced in the United States: entrepreneurship, innovation, ingenuity, dynamism, risk taking, wealth building, and commerce are chief among these benefits.

But readers also know that corporate capitalism has its drawbacks, including (but not exclusively) financial crises that have resulted in devastating economic and social upheavals.

1893, 1929, 1987, 20??

Moreover, despite technological change, productivity increases, and massive increases in wealth, it's remarkable how similar both the crises and the public policy responses have been over the hundred-plus year period: excesses occur, bad debts mount, some regulatory changes are implemented by the U.S. Government (and sometimes by state governments), and then corporate capitalism resumes.

Further, whether it's due to America's culture, its vast natural resources, something innate in Americans, human nature in general, or some other factor, or a combination, every time a crisis occurs, the American people, by and large, reach the same conclusion regarding what caused the crisis or problem: bad decisions or incorrect decisions. Basically, that people, mainly executives and other business leaders (sometimes federal/state regulators), made mistakes or bad decisions.

The global stock market had more ups and downs this week than the career of Britney Spears. Don't look for the bottom to appear anytime soon following the worst week for global equities in six years.

A parade of superlatives continues to weigh on the mind of investors, most of them bad. Unemployment is at a five-year high. Payrolls shrank by 84,000 last month, according to the Labor Department. That's more than 75,000 economists predicted, the Associated Press said. Rising interest rates spurred the biggest increase in the foreclosure rate in almost three decades, according to Bloomberg News.

Sure oil prices are dropping to near $105 but they are still high. No car, truck or airplane was ever designed with the thought that oil would be anywhere near that high. Gasoline prices have also come down but they are still at levels that many Americans can not afford.

Political science empirical research teaches us that when U.S. unemployment is rising and job losses occur over many months, the political party in charge of the White House will have a difficult presidential election. (See: The American Voter, by Campbell, Converse, Miller, and Stokes.)

Federal statisticians will release one more jobs report, the September jobs report in October, but to-date the trend is not one of U.S. economic health.

The U.S. Labor Department announced Friday that the U.S. economy lost another 84,000 jobs in August, with the unemployment rising to 6.1% - - a five-year high.

The U.S. economy has now lost 605,000 jobs in 2008 after creating just 1.1 million in 2007. Economist David H. Wang told BloggingStocks Friday the U.S. economy is not growing.

'U.S. economy headed in wrong direction'

"The U.S. economy is in recession. We don't have to wait for two-quarter date to confirm it. These are very bad numbers and the economy is headed in the wrong direction," Wang said. "Electioneering attempts aside, the U.S. economy is, objectively, in bad shape and anyone who fails to see this fails to recognize reality."