Thursday, November 6, 2008

Dow Headed Toward 4,000?

That's a scenario suggested by this MSN Money column:
once the current rally interlude is over, it's not hard to see the Dow Jones Industrial Average ($INDU) sinking to around 4,000 -- a level it last hit in 1995, before debt started to play such a large role in corporate and personal finance.

That would entail a decline of 70% from its 2007 peak, or about the same amount the Japanese stock market has fallen since 1990 in the wake of its own debt unwinding. Or the amount the Nasdaq Composite Index ($COMPX) dropped from 2000 to 2002. Or the amount the Russian market has plunged since June.
Meanwhile, one CNBC columnist is suggesting that, if the domestic automakers cannot make it as is, then they should be allowed to fail.

While it would be painful, Daily Sprawl agrees with that assessment. Ultimately, the system must be cleansed of bad debt and bad business models before it can reliably work again.