When I was a U of I undergrad, Dr. Janet L. Weston, used a parable to explain the definitions (and perceptions) of the various downturns by the public. She said: “When you come home at night and see on the NEWS or read in the paper, that somebody elsewhere has lost their job, the economy is cooling. When you come and learn how a family member, friend, or neighbor has lost their job; the economy is in recession. When you come home and reveal that you have lost your job, it is a depression!” How close to home an economic or financial situation hits really defines everything!

Until the Great Depression of 1929, such widespread downturns were called “Panics.” These were periodic retrenchments of the natural economic cycle. They varied in severity and duration. The “Big One” of the 1930’s was perceived as different beast. Steps were taken to manipulate growth and economies to forestall such a global catastrophe from re-occuring. The wild west of unrestricted (and free) functioning of economic forces gave rise to regulation and various governmental stimuli. This worked up to a point since WWII. If the policies of “crystal ballers” with their hands on the throttle (or the brake) missed in their prophetic/ “profitic” actions; mistakes were panned off as a mere correction. Most recently, the fixing stimulus to any bubble in growth (or prosperity) was to maneuver an even bigger one to take its place. Borrowing and spending was the panacea for everything. Printing money and cutting interest rates would “always” prove a wonder-cure and prosperity would once again follow. We are now seeing that eventually such a misguide policy has its own problems, too!

Last week the vultures finally came home to roost. The elephant in the front parlor was proving too costly to feed as some loveable house pet to ignore. In 1929, Wall Street fell by 23%. Last week leading market indexes fell by 18%. Elsewhere in the world, major exchanges declined even more. Trading was suspended at several of them for a few hours to provide a “catch-a-breath break.”

Earlier in Spring, I responded to readers’ emails asking where I thought the bottom would come? Then… I responded that the major bottom would only come when the Dow Ind was somewhere between 7,140 and 8,568. This marks a 50% to 40% drop from the all time high of 14,280 – ditto for other indexes. Most responded at the time that I was absolutely crazy. This has been the historical norm in almost all earlier panics, depressions, and recessions. We are told how the markets eventually recover – but…it took 29 years for the markets to recover from 1929! Do you have that much time to wait in this go around? I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.

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