Obamanomics, or How Low Will the Dow Go!

bear-market

As Glenn Reynolds at Instapundit notes here, since the passage of the Bankrupt the Nation Act of 2009, erroneously referred to as the Stimulus Bill,  the Dow has lost over 1400 points.  Since the election of President Obama, the Dow has lost over 2700 points as detailed here.  However, in the midst of the greatest Bear market in a generation, our President has financial advice for us:  Buy stocks!

Out of curiosity, I wonder how many of our readers do plan on buying stocks in the near future? Second question:  how low will the Dow go?  I am hardly a financial wizard, but my best guess is 5,000 as the floor before the smart money comes in to pick up bargains and stabilize the market between 6,500 to 7,000 by the end of the year.  What is your best guess?

Ed Morrissey on Hot Air is reporting that conservative Blue Dog Democrats are talking openly of blocking parts of Obama’s agenda.  If the Dow tanks as badly as I think it will, they might well have a lot of Democrats joining in their attempt.

Lest we forget how much money was earmarked to be ultimately swallowed up in the Bankrupt the Nation Act of 2009, here is a video reminder from the American Issues Project:

UpdateI :  6,594 at the close of trading on March 5, 2009.

Update II:  A good examination at Betsy’s Page as to what share of blame can be allocated to Obama for the stock market collapse.

19 Responses to Obamanomics, or How Low Will the Dow Go!

  • Very well authored and understood!

    I favor President Obama’s Stimulus plan, as you can see by my recent posting:

    http://ourcountryspresident.wordpress.com/2009/03/04/the-voice-of-wall-street-speaks/

    And sure hope it works for all Americans, everywhere!

  • Out of curiosity, I wonder how many of our readers do plan on buying stocks in the near future?

    I’ve been thinking about it. (Of course, I’ve also been thinking about stockpiling gold, so my investment strategies are a bit diversified).

  • Much pain is being felt by people in their late 50’s who could have done well had they opted out of the 401 stocks into the safety of principal feature of such plans….about two years ago. Now they have lost half of their life’s retirement savings. Had leveraged shorting etf’s been available to 401 people, they would still be hurting but would be better off than they are. IRA people (retirement accounts in IRA plans…not left over Irish radicals) can use leveraged short ETF’s. The 401 options need a lot of tweaking after this in the bylaws. They fix inexperienced people into the long direction which is chaos when a down market comes. Do a hundred year chart at big charts using .spx for the broader market and you will see that people whose stocks went down during the depression, took 25 years to come up to their peak again. Hopefully this time being different will be much quicker than that. But the carelessly bandied about canard of the past decades: “the market always comes back”…. executed some older folk who stayed long…..trusting in that….. as the market went down.

  • Hmm, not that I’m fan of the Prez and his stimulus plan which is obscenely laden with pork and counterproductive spending, but I think his promoted investment in the stock market is a good thing – or could/should be. The market is sensitive to confidence and fear. You want to tank the market for sure, have the nations executive and financial leaders say that the market is in horrible shape and recommend everyone bail out of it. On the flip side, try to instill some confidence and (genuine) hope, that we will work our way out of this, but part of that is to behave in a manner that looks to the future.

    I’m not saying that I think we’ve hit the bottom – I have no idea. And I’m not saying that if everyone started investing more heavily in the market it still won’t tank and bust the nation further. I just know that if the only way to help the market to recover is to build some confidence. I’ll give the Prez credit on that front because the M.O. of his party is usually to peddle fear which always makes things worse.

  • Tom,

    what exactly do you like about the stimulus bill that is mostly void of the key stimulating measures that are universally agreed to? tax cuts, and infrastructure projects?

    Community organizing is not infrastructure, steelworkers will not retool to become social workers and pre-school teachers.

  • I did go ahead and crank up my 401k contributions a few percent back in January, on the theory that the stock market is low enough that it’s a “bargain” to buy more now. I also started buying my company’s stock again for the first time in a couple years — it’s bottomed out at roughly the cost of lunch per share and I think the company’s essentially sound so I figure it’ll go up eventually.

    However, being 30, I have a lot of years for the buying-at-the-low behavior to pay off. I don’t know if I’d be doing it if I expected to need that money within the next five years.

  • I’m with Rick as far as not knowing how far the market will drop, but I also am of the same mind as Black Adder is on Gold. I haven’t made any decisions at all, but I’m eyeballing high risk mutuals the closer the stock market approaches 4-5000.

  • Sold almost all I had in August so avoided big losses (took some losses.) Have all my contributions on hold as of this month. Will watch how the market will go in next couple and decide on restarting contributions. Think 5000 is not unreasonable. Will wait until sure bottom is hit before considering reinvesting. No need to buy now if stocks are still overpriced.

    My big concern is long-term. The stimulus plan may actually improve the economy somewhat in the short-term (next year.) My concern is for the long-term which the plan may impair. Thus my doubt in investing for the long-term.

  • I had been doing some volatility trading with indexes, but (fortunately) got out last week. Not sure if I’ll go back in anytime soon. I think stepping up the 401k contributions is probably a good idea long term, though.

  • “I think stepping up the 401k contributions is probably a good idea long term, though.”

    The problem is probably. It is probably good if you’re thirty. If your in your fifties I’m not so sure.

  • John Henry,

    It is in my humble opinion that what you’re doing is exactly what I do to during times like these. I increase my contributions when the market slides because when the market does rebound you’ll have many more shares in your 401k that will drastically increase your bottom line.

  • There is a lesson here for all the 30 year olds and 40 year olds vis a vis their 401’s…when they age into retirement. As one gets into their 50’s, one must be way cautious and seeking more safety.
    The other more adventurous lesson is to put something in IRA’s alongside a 401 which would have helped you even now….because IRA’s permit short ETF’s meaning ETF’s (bought exactly like stocks) that do the opposite of the market. The market goes down;they go up.

    When a dark period comes with systemic warnings on the whole economic system being given weekly on the nightly business news, the IRA pensioner can load up on vehicles like QID which does 2 times the inverse of the Nasdaq. As the market tanks, QID goes up and depending on the principal, it can prevent one’s whole total from doing anything negative or positive if one watches it as one can with IRA’s on the internet at places like Fidelity. Since it does 2 times the inverse, it takes less money in the IRA to counterbalance the 401 regular stocks but it needs watching because the short vehicles lose their advertised leverage when things are very bad so that a 2X’s can become something less than that in efficacy.

    It is not perfectly easy…otherwise no hedge funds would be down since they employ this technique…but many of them are down half what the market is down and hedge funds have the added burden in dealing with so much stock, that they are not as nimble as an IRA person in this area. There are short only hedge funds that are up 90% in this time period.

    Laws for 401’s should make something like the Prudent Bear Fund available: it is a Mutual Fund that is always short….goes up when the market goes down.

  • I guess this all presupposes what the Obama plan will do to the economy long-term. By this I mean for the next ten to twenty years. Will the plan make the American economy (and the stock market) grow much more slowly? If so, will we not see the historical 8% returns on stock investments (as I understand them to have been.) Or will they be significantly less? If significantly less, what would be a better investment especially if one is still not a youngster and a 4% return on an investment may not yield much in ten or fifteen years.

  • As one gets into their 50’s, one must be way cautious and seeking more safety.

    It’s a very good point. I turn 30 later this year, and so I can accept a higher level of risk. It may be a very bad idea to step up 401k contributions into the market if you plan to retire in the next five years. Even for younger people, the Japanese stock market is a pretty stark reminder that markets don’t always continue upward.

    http://www.tradingeconomics.com/Economics/Stock-Market.aspx?Symbol=JPY

  • Bill,

    I completely agree. I probably should have put a caveat to my earlier posting concerning investing in high risk mutuals, but while you’re still in your 30s and 40s.

  • In the 80’s Japan was the economic miracle. John Henry’s link above shows how things can change. The general rule for the American Stock Market has been to hang in there. In the long-term things will turn out just fine.

    However, is Obama’s economics making the future of the American Stock Market look more like the current Japanese one?

  • Obama’s anti-capitalist rhetoric has driven the market further down. The economic slowdown may have started with President Bush, but Obama is pushing this economic slowdown into a disasterous depression.

  • The question for long-term investment then is will this (possible) depression transition into sluggish, European style growth? If so, will the conventional wisdom about long-term investing hold? Or if one is already in their 40’s it might not be advantageous to invest but if one is in their 20’s and young 30’s perhaps so?

  • Another thought on “how low can it go.” They’re talking 4000! Do I hear 3?

    http://www.marketwatch.com/video/asset/dow-could-hit-4000/1973951D-B6AB-41F1-B91D-06032C304AFB

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