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A Cloudy Crystal Ball This is the most uncertain and anxious time in the financial markets in my memory. We are a short step from a full blown panic. Everywhere one turns -- stocks, bonds, real estate and commodities, as well as related investment vehicles -- there is a high degree of volatility. The pundits and commentators are full of dire predictions fueling the overwhelming negativity. To be sure, there is more than ample negative economic data to support virtually any bearish scenario. The price of oil is not only at a historic high, but also the full effects have yet to be felt in the broad variety of areas of the economy to be impacted over immediate term. Prices of other commodities, especially food, have spiked recently and don't seem to be near a bottom. Home prices continue to mount. This lousy list could go on and on. My crystal ball is cloudy. I don't have a strong view whether we are at the bottom but I strongly doubt it. If forced to make a prediction, I would expect six to nine months of continued decline and distress. History may provide an interesting context. Basically, over the last 50 years the equity markets have experienced sharp pullbacks on nine occasions. On four of those nine occasions the market declined just in excess of 20%, and on five of those occasions the equity markets declined over 30%. Now, the pundits have been reminding us that, as of last week, we are now officially in a bear market -- the markets are now down slightly over 20%. So I think the proper question is whether this bear market will ultimately, with of course the benefit of hindsight, rank within the group of four pullbacks averaging roughly a 20% decline or with the five pullbacks averaging an over 30% decline? Other disturbing circumstances: The Fed basically has its hands tied, the credit markets are bordering on the dysfunctional, and the dangerously high percentage of homeowners has only a slice of equity left in their homes. Many experts believe is a 15 to 20% decline from here would not be unexpected. Given the existing level of nervousness and overall economic weakness, if the correct answer is that this time around we are now not at the bottom, look for some good old-fashioned panic in the not too far distant future. So, for me, I am praying we are at a bottom but I am not willing to bet on it. I feel like I am whistling by the graveyard with fingers and toes crossed. --- William E. Simon, Jr., the son of the late Treasury Secretary in the Ford Administration, is an investment banker and Foundation President. He ran a very close race for Governor of California and continues to be active in conservative and Republican politics. He is a member of the Heritage Foundation Board of Trustees. -------------------- Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.
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