A Bad Anniversary

Today is the one-year anniversary of Lehman Brothers’ cataclysmic failure. In other words, this time last year, the you-know-what was hitting the fan.
Lehman announced it was done on a Sunday. Amazingly, the S&P 500 opened down only a point down on Monday, at 1,250. By the end of the day, the S&P had lost 58 points. Stock prices swung wildly the rest of the week. It wasn’t until October 7, 2008 that the S&P went below 1,000.
It was Monday, October 6, when celebrity investor Jim Cramer made his now-famous Monday "Whatever money you may need for the next five years, please take it out of the stock market right now, this week…" declaration on NBC’s Today Show.

I always have mixed feelings about Cramer. He’s a great showman. But his advice is not always reliable. That day, however, Cramer was right in alerting American investors to what a dangerous situation we were facing. The S&P 500 was trading at 1,097 when he made his "sell everything" call.
The S&P is still below that level. So in that regard, Cramer’s timing was right.  But he was wrong that that there would be no opportunity for 5 years.  
******As we’ve seen, government stimulus efforts have restored stability and confidence to the financial markets. Right now, the only perceived threat to growth is the unemployment rate. All the other bearish catalysts – commercial real estate, toxic assets, rising foreclosures, weakening dollar, inflation – are essentially being ignored.
So how much do we discount stocks for the unemployment rate? From its peak at 14,000, can we say the Dow is fairly valued for 10% unemployment at 10,500?
Sure, why not?

Looking at this 10-year chart of the Dow Industrials, 10,500 doesn’t seem outrageous. And I would also argue that at the present moment, there’s no need to overcomplicate things.

U.S. government has essentially underwritten all risk in the stock market. That’s the basic thesis behind my "Cash for Clunker Stock Rally." I see no reason this rally won’t continue. I expect we’ll see who still has their circa 2000 Dow 10K hats… ******Today is the big day! My first book, The Small Cap Investor: Secrets to Winning Big with Small Cap Stocks hits the shelves today.  Learn more or order your copy from Amazon now.

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