Douglas McIntyre, writing on the 24/7 Wall Street blog, believes the Dow Jones industrial average could fall 1,000 points on Friday – and he does a nice job of summarizing why investors have suddenly become pessimistic about a rebound in either the stock market or the economy.
“The most deeply pessimistic economists that most of the world thought were crazy six months ago, even one month ago, are turning out to be right,” he said.
“There is every reason to believe that based on retail sales, business lay-offs, and rising mortgage defaults that a recession will last at least four quarters and gross domestic product could drop by 3 per cent or 4 per cent in each of those. That would likely mean unemployment rate of close to 10 per cent, putting another five million people out of work.
At that point, it becomes a vicious cycle. Those out of work cannot buy anything. They default on mortgages, car loans and credit cards. More people are laid-off.
The stock market is collapsing and may keep doing so because traders cannot see a bottom. That may actually make shares expensive now.”
