19 November 2008

Bad Economic News Keeps Coming

The S&P 500, widely considered the broadest snapshot of corporate America, slipped 6.12 percent to 806.58; and the Dow gave up 5.07 percent to 7,997.28. Both closed at their lowest levels since March 2003.

The financial crisis has already wiped out $6.69 trillion of value from the S&P 500 since its October 2007 high . . . . The Russell 2000 index gave up 35.13, or 7.85 percent, to 412.38.

From here.

Stocks are far below where they were when President Bush took office, when the Dow was at 10,587. In addition, the past eight years have seen 25% inflation. In real dollar terms, the Dow Jones Industrial Average has lots about 40% of its value during the Bush Administration.

Put another way, not only has the Dow not made any progress during the Bush Administration. Even before adjusting for inflation, the stock market has also erased all the gains made in the last three years of the Clinton Administration. In inflation adjusted terms, money invested in the stock market when I entered the work force in the early 1990s is worth no more than it was when it was invested, despite the standard dogma of financial planners that stock market investments can be expected to earn 7% per annum nominal total returns in the long run.

The construction industry remains particularly hard hit:

Housing starts fell in October to their lowest levels nationally for any month since the Commerce Department began record-keeping in 1947.

Mortgage applications are also down almost 80% from their May 2003 peak:

[T]he Mortgage Bankers Association said mortgage application volume fell 6.2 percent during the week ended Nov. 14. The trade group’s application index slipped to 398.6 during the week, down from 425 a week earlier. The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.

According to Calculated Risk the current financial collapse is has gone deeper than the initial 1929 crash that launched the Great Depression, and is neck and neck for percentage losses as many days into the Great Depression as we are into the current financial crisis. The markets have lost almost as much value as all prior financial collapses other than the Great Depression, for their entire duration (the Tech Crash lost a couple percentage points more over a much longer period of time than we hav lost so far).

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