Steve's Place

[DeepBlue1]

I was looking at a chart of the DOW going back to just before the Great Depression.

If you draw a trend line along the bottoms from just after the Depression until now it ends up at just below 4000.

That trendline inplies the normal growth curve over time and eliminates the bubble that began in the '80s when this new leveraging approach began that set off the hyper-growth over the last 30yrs or so.

Now that banks are being forced back into the more normal range of leveraging I fully expect the Dow to revert to it's mean.

How we get back there is the only question in my mind. We can either head back there fast, hit the 4K level and immediately resume normal growth....OR,

we can slow down the free-fall and drag this out for several years and have a slower fall while we wait for the normal growth trend to catch up with us.

Even with this parachute that Obama is attempting to supply us with, we can only slow down the fall. How much it slows down will determine how low it goes before the trend catches up.

It's like jumping out of a plane. You're gonna' hit the ground one way or the other. NO PARACHUTE = freefall to 4K ...PARACHUTE = drift sideways in the wind for several years and dropping to 6K

Even with a good parachute, I think we're in for our own version of Japan's "lost decade". Without one...ARMAGEDDON

(click on chart link below and then click on MAX for the time scale to see the chart of the Dow from 1925 to the present. It clearly shows the Great Depression drop, the post WW2 bubble and the post 1985 leverage bubble. Now we're going back to the normal and sustainable growth trend. How long it takes to get back there is wholly dependent on how good our parachute is and how far we drift sideways on the way down. 4Ks/5Ks/6Ks....all possible)

http://finance.yahoo.com/echarts?s=%5EDJI#chart5:symbol=^dji;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined