Originally Posted by . . . Yrs to Go
But the world's governments have been stepping in, and very aggressively too. This could have turned in to a depression but I'm pretty confident it won't happen. The world's government's are throwing money at this crisis and pumping liquidity into the system. That is very, very, very, very, very (add many more veries . . . ) different from the response to the crash of 29.
That isn't to say we won't go through a nasty recession. Earnings will decline, unemployment will go up, etc. etc. But also remember that the stock market is a discounting mechanism. As bad as you think the future will be, the market is discounting that fear in today's prices. For stocks to continue to decline over the long-term, the future has to be worse yet then most people fear. That is a tall order.
everyone is saying severe recession by the stock market drop, but no one mentions that all the banks were as leveraged as in 1973 and 2000 and that the PE of the SP500 was higher than it's historical mean.
so we suddenly get a few weeks where everyone knows earnings will either come down in 2008 and 2009 due to higher credit costs, some public companies will go under or there is no earnings visibility at all. combine it with the Lehman CDS auction and you get an ugly week that scares everyone.
the banks and commodities are probably dead money for at least a few years. everything else may not be that bad especially if the governments take the right action. similar happened in the late 1980's. banks were dead until 1995 and commodities crashed after the war. but the cheaper housing prices and cheaper commodities put extra cash into people's pockets.
people also talk about the trade deficit and how we'll have to cut back and whatever. what they forget to mention is most of the trade deficit was oil and we'll be drilling domestically now and with cheaper gas prices coming the trade deficit will fall.