Fallout: The Financial Crisis

How low can the market go?

Jeremy Hobson Nov 20, 2008
Fallout: The Financial Crisis

How low can the market go?

Jeremy Hobson Nov 20, 2008


Tess Vigeland:
If 400- and 500-point swings are the new normal, as we saw today,
then it is, then it’s going to be very difficult to answer the question that keeps popping up in this market era–How low can it go?
Today the S&P 500 fell to its lowest closing level since April of 1997.
The Wilshire 5,000 is down more than 50 percent from its high last October.
Marketplace’s Jeremy Hobson peers into the crystal ball from New York.

Jeremy Hobson:
There aren’t a lot of investors willing to make predictions right now.
They don’t want to shoot too low and scare the markets.
And they don’t want to sound too Pollyannish.
Peter Schiff, president of Europacific Capital, is a known doomsayer.
The trouble is, he’s been right about a lot.
Here’s his prediction for the Dow.

Peter Schiff: In 1980, the Dow was at one ounce of gold. And I certainly think it can do that again. Right now, the Dow is worth about 10 ounces of gold.

Schiff says that could happen if the Dow drops to 5,000 and gold jumps to $5,000 an ounce, as investors flee to safety against inflation caused by all the bailout spending.
And he says no stocks will be safe from a dramatic drop in consumer spending.

And I think a lot of U.S. companies are going to go out of business, and many of them that don’t are going to dramatically downsize to reflect an American population that is much poorer and that spends a lot less money.

Charles Peabody of Portales Partners isn’t quite as bearish.
Still, he says his clients are fearful.

Charles Peabody:
I think what you’re seeing is a growing removal of participation in the markets, which means they become thinner and less liquid. And the thinner and less liquid they become, the more volatile, and that’s very scary.

Peabody chalks up this week’s losses to doubts about the government’s ability to solve the crisis.

Peabody:The marketplace knows that there are embedded losses in the system, and the question is how are you gonna apportion those losses.

He says investors want the government to bear the greater burden.
So the Treasury’s about-face on the bailout last week sent confidence on Wall Street plummeting.

In New York, I’m Jeremy Hobson for Marketplace.

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