10/9/2002 Dow closes at 7286.27

When discerning amidst volumes of information, media, and general punditry we need to remember to use wisdom. Remember the past, let it help you understand the principles of the future.

As we are into our "official bear market" due to the DOW closing down 20% from it's most recent high (in the last 52 weeks), we need to remember where it closed only 6 years ago.

...7286.27...

Isn't it ironic that the DOW closed at that level on Oct. 9th 2002, then reached the most recent all time high last October, 9th 2007? Additionally, Black Monday, the largest percentage drop in the DOW's history was 10/19/87. Lastly, the 2nd and 3rd largest percentage drops in history were 10/28/29 & 10/29/29 respectively. It appears as though October is a volatile month...

The DOW would have to plummet another 36% to reach those levels.

While I'm not saying it's impossible, look at what happened next. We rode the next 6 years on a bull track, topping out in the 14's.

There's still much more of the credit crises to be address. We now are dealing with global inflation. Our currency is needing a good bolstering, but if we do that, we crush a fragile economy. Food & Energy costs are soaring, which is providing an excellent podium for political candidates this Fall. The war question is still out there...dragging on...and on...and on. The commercial real estate markets are signaling an end to the bull as vacancy rates rise, crunching the strip malls. Unemployment rates are stepping up the pace, and the government extends benefits 16 weeks for the unemployed. Acqusition & development on construction permits are virtually nonexistent. In other words, people are cutting back...and well they should.

Our environmental policies will change once enough get hurt by the increasing energy costs. People will get fed up, replacing the current electorate with a different flavor. Bankruptcies, foreclosures, and delinquincies will soar, forcing banks to run dry on reserves, some to implosion, some to receivership under the FDIC, and some to acquisition.

But, in the end, 4 years from now (I believe this will all blow over by 2012), the dust will settle, and the bear will go into hibernation.

Until then, cash is king, shorting stocks are the prince, and options are the aristocracy. The hedge will thicken as the claw trumps the horn...but only for a time.