Thursday, October 09, 2008

Welcome to 1987!

This is pretty amazing.

Since October 1, we have essentially seen a slow-motion version of the 1987 stock market crash, declining about the same amount (in the range of 20% on the Dow).

And since a year ago, we have seen a slow-motion version of the entire 3-month top-to-bottom move of 1987, in the neighborhood of a 40% decline on the Dow.

Welcome, ladies and gentlemen, to history. Sit down, take a deep breath, and reflect on what we are seeing. Decades from now, people will be referring back to the "crash of 2008" or something to that effect.

That doesn't mean it's over. My sources are generally looking for even more pain before it's all done. We are seeing forced selling by hedge funds and other overleveraged traders. Each wave of declines triggers more margin calls, which result in more selling until traders are sufficiently deleveraged (i.e., they sell enough to bring their level of borrowed money down to earth).

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