9.3.09

Dow 5000? / 36 Month Recession

US Recession Could Last Up to 36 Months: Roubini

09 Mar 2009 | 03:52 PM ET SOURCE: http://www.cnbc.com

The man who predicted the current financial crisis said the US recession could drag on for years without drastic action.

Among his solutions: fix the housing market by breaking "every mortgage contract."

"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."

Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."

Roubini, who is also known as "Dr. Doom," told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through "a death by a thousand cuts." He also said that "most of the U.S. financial institutions are entirely insolvent." 

"We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression," Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent.

Finally, while he says there will be "a light at the end of the tunnel", it'll probably get worse before it gets better. Those who believe in a second half recovery this year "are delusional" he says.

In fact, based on Roubini's calculations, we could conceivably see the S&P 500 at 500, the Dow at 5000.

Dow 5000? There's a Case for It

Strategists Still See Rally, but Earnings Point to 1995 Levels for Stocks
March 9, 2009 


Just how low can stocks go?

Despite Friday's small gain, the Dow Jones Industrial Average marked its fourth consecutive week of losses as it tumbled through the 7000-point mark and spiraled to new 12-year lows. The Standard & Poor's 500-stock index is trading below 700 for the first time since 1996.

As earnings estimates are ratcheted down and hopes for a quick economic fix fade, the once-inconceivable notion of returning to Dow 5000 or S&P 500 at 500 looks a little less far-fetched.

Between April 8, 1932, and July 8, 1932, stocks fell 34% -- a little more than what it would take to get the S&P to 500.

A level of 500 would take declines for the S&P to 68% since its October 2007 high, compared with the peak-to-trough depression-era slump of almost 90%.

Plunging Markets, Then and Now
March 5, 2009, 6:50 PM


Here are the rankings for worst two-year periods, again assuming 2009 ends at today’s prices:
1. 1930-31, down 69%
2. 1931-32, down 64%
3. 2008-09, down 50%
4. 1929-30, down 45%
5. 1973-74, down 40%
6. 1906-07, down 39%
7. 2007-08, down 30%
8. 1940-41, down 26%
9. 1916-17, down 22%
10. 1920-21, down 25%

Here’s another indication that investors feel more or less the way they did during the last disaster:

It has been 513 calendar days since the stock market peaked on Oct. 9, 2007. Since then, the S.&P. 500 is down 56 percent and the Dow is off 53 percent.

On Jan. 29, 1931 — the identical number of days after the 1929 market peak — the S.&P. 500 was down 49 percent and the Dow was down 56 percent. The 1929 crash got off to a much faster start, but we have now more or less caught up.

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