Enough Already: Dow Loses Another 5.1%

November 19, 2008

The Dow Jones Industrial Average posted a 5+% daily loss today for the fifth time since September 29th and closed below 8000 for the first time since March 31, 2003. In the 11 trading days since the U.S. election, the DJIA has dropped 16.9%. If that pace were to continue over the 32 remaining trading days until the inaugural on January 20th, the Dow would be at 4665 and 67% below its October 9th peak.

The market’s relentless decline represents a vote of no confidence in practically everything. Prices are 11% below levels a month ago when the most successful stock picker proclaimed it was a good time to buy, although to be fair Mr. Buffet made no promises then that a bottom had been reached. Investors disbelieve that this business downturn will be shaped like others in their lifetime and wonder if the banking system, which remains far from normal, will begin to deteriorate anew. What policies will be tried, and how will the U.S. and global economies respond? Nobody has convincing answers. How drastically will regulatory oversight be changed? Is it just coincidence that the market’s slide accelerated after the U.S. election of a different party committed to considerable change? Are investors casting a voting of no confidence in what voters decided pretty convincingly? Some of the proposed changes, for example on trade, deserve criticism, but President-elect has pulled together an impressive group of advisors. More broadly, investors do not trust capitalism at the moment. Swings, for instance in oil from $77 per barrel when the financial crisis began in August 2007 to a peak of $147 this past July and back to $53 now appear manipulated to the cynic and frighteningly excessive to those craving a little stability.

The United States is not alone. Hopefully, leaders from advanced countries and developing ones alike will have the wisdom to fix the economic problems without committing policy overkill, and equally important, they will need the communication skills to nurse investors back to a trust in the future. In psychologically fragile times like these, it’s not so much what governments do but how they sell the package that will matter. 


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