Great Depression Online Archive Issue:

Once In A Blue Moon

Great Depression Online
Long Beach, CA
October 10, 2008

Inside This Issue You Will Discover…

*** A B-Rate Gore Film
*** A Brief Disclaimer
*** Once In A Blue Moon
*** And More

A B-Rate Gore Film

Stock markets the world over spilled blood this week.  On Wednesday alone the Japanese Nikkei 225 lost 9.37%.

Fearing a similar pounding would hit the NYSE, Federal Reserve Chairman Ben Bernanke took emergency action before U.S. markets opened…slashing the federal funds rate 50 basis points to 1.5 percent.  In a coordinated attempt to stop the madness, the central banks of Europe, England, Sweden, Switzerland, and Canada cut rates too.

Come Wednesday morning, U.S. markets didn’t know what to make of it.  At opening bell traders blinked before their trading screens as one blinks before a man with an eye patch…  The market lurched uncomfortably forward from one erratic blink to the next.  It zigged…it zagged…up…down…in…out…finishing Wednesday off 189.01 points (-2.00%).

By Thursday traders could no longer blink.  They just starred wide eyed at the recurring scene that has become so dreadfully unsightly, so intolerably miserable and grim that it reduces the whole desires of man to that of a ghastly b-rate gore film.

~~~~~~Half-Priced Stocks~~~~~~

Buy stocks on sale for just half-price.  With the market taking a beating the way it has, there’s bound to be some stocks that were unfairly punished.  That’s where our friends at Half-Priced Stocks can help.  In fact, they specialize at sifting through the expansive rough for the elusive diamonds…diamonds that are now selling for massive discounts.  Learn more here: Half-Priced Stocks.

~~~~~~~~~~~~~~~~~~~~~~~~~

When the closing credits finally rolled across the screen the DOW had crashed 678.91 points (‑7.3%).

A Brief Disclaimer

For what we hope will one day translate into profitable edification for you, we look back at the recent market destruction…

From October 1st through the 8th the DOW lost 20.9%.

From September 2nd through October 8th the DOW lost 25.7%

And from its peak on October 9, 2007 – exactly one year ago – the DOW’s lost 39%.

Following such rapid losses, one very important question comes to mind: Is now a good buying opportunity?

Yet the answer, of course, is not so simple.  Because the answer depends on if you are a trader or if you are an investor.

Before continuing on, we must offer a brief disclaimer.  Beware: What follows is the conjecture of sorts that’s typically reserved for a meeting of the top minds of the Who Shot JFK Society.

With that out of the way, we’ll continue…

If you’re a trader, now could be a great time to buy.  Markets go up, and they go down.  And even when markets are trending down, there are strong counter-trend rallies where they go up.  On a gut level, after crashing 25.7% since September 2nd, one would presume that the market’s due to recover some losses…of course, that’s just a short-term bounce before it extends its next leg down.

Don’t you see how it works?  Isn’t this fun…and easy?

Still, we like to sleep well at night.  So we leave such speculation to those who like to loose money – and sleep.

Once In A Blue Moon

In looking back at the S&P500 – a broad measure of U.S. stocks – we see that bear markets have historically bottomed out when the index’s price-to-earnings ratio (PE ratio) is at 11.87, on average.

Today the S&P500’s PE ratio is at 18.83; not too close to the historical market bottom PE ratio.  So for the PE ratio to narrow, corporate earnings either must increase or stock prices must drop further.

With the economy in a recession, and unemployment increasing, we anticipate that corporate earnings will be flat or decreasing over the next several quarters.  Thus, stock prices must drop even more to slim the PE ratio.

Markets ultimately bottom out about once in a blue moon.  We could get there quickly if the market continues its rapid decline.  Or we could grind down the PE ratio over the next 6 – 8 years.  The last time the market truly bottomed out was 1982…the S&P500’s PE ratio was then at 7.39.

At that time everyone knew that the stock market was for suckers…a place for morons, dorks, and misguided weirdoes.  Yet over the following 18-years the DOW returned over 1200%.  That’s 12 times your money just for being “in” the market.

So take heart.  For the harder the market falls the sooner the next blue moon appears.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  We don’t have the attentiveness or diligence to pick individual stocks.  And with the market taking a beating the way it has, there’s bound to be some stocks that were unfairly punished.  That’s where our friends at Half-Priced Stocks can help.  In fact, they specialize at sifting through the expansive rough for the elusive diamonds…diamonds that are now selling for massive discounts.  Learn more here: Half-Priced Stocks.

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