Our Market

Free fall describes market behavior last week, as we watched one of the biggest declines in market history take place. By the numbers, for the week ended Friday, October 10, 2008, the Dow Jones Industrial Average closed at 8451, down 1874 points, or 18.2%. The Standard & Poor's 500 closed at 899, down 200 points, or 18.2%, and the NASDAQ Composite closed at 1649, down 298 points, or 15.3%.As we have noted before, a substantial part of the problem in the US is debt. Congress, in its wisdom, provides deductibility of interest paid, and taxes interest earned. Two simple changes, non-deductibility of interest paid, and no taxes on interest, dividends, and cap gains, would make a big difference. The challenge is that would put some control back in the hands of voters, and loosen the bonds that tie the voters to those elected officials and their friends gorging at the government trough.Retailers reported soft sales, and 71% of retailers missed their earnings targets. IBM posted a 20% gain in quarterly earnings, and reaffirmed its earnings forecast. GM is trading at about $4.65. The last time that happened, the average car was $3000, gas was 20 cents a gallon, and your average home cost $16,000.Most of us have been attempting to sort the world out, and figure out what is going on. We have a strange election year, housing and construction is quiet, and banks appear to be out of money.In terms of lack of funds, this in my opinion is simply years of too many households, companies, and governments financing their futures with debt. The government has no place nationalizing financial institutions, yet it appears from the response of most Americans that we prefer security to freedom.On the housing front, real estate is moving through a traditional cycle. The cycle is made more difficult due to the lack of liquidity. This cycle will turn, and the survivors will be stronger for it.