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Another Panic Scenario
-- September 13, 2001
Yesterday, I gave you one likely scenario of what may happen when the markets reopen -- a dramatically lower opening, a recovery, and then another plunge to new lows. Today, let me suggest another panic scenario:
Event #1. While the world sees only tragedy, the US Federal Reserve, the US Treasury, and their counterparts at other G-7 nations see an opportunity -- to declare war on all that has ailed their economies. They vow to fight the tech wreck, falling stock markets, rising unemployment, recession, and deflation. They commit to a massive, concerted effort to nip the worldwide economic crisis in the bud.
Event #2. Whether it's tomorrow or Monday, the New York Stock Exchange opens with a smaller decline than feared.
Event #3. In response to the G-7 pronouncements, the markets bounce back, gradually at first, but with more momentum as time passes.
Event #4. In the days that follow, if you put your head out the window, you can almost hear the cheers from downtown Wall Street to Kabutocho (Tokyo's equivalent to Wall Street). The rally continues for days or even weeks.
Event #5. But like the rally we saw in April, the celebrations are vastly premature. The world soon wakes up to the realization that although we can win in a war against terrorism, we cannot win this battle against recession.
Nearly all the great financial bubbles of the 20th century -- in the US, Europe, Japan, and emerging nations -- had already burst well before the terrorist attacks. It's too late to put the bubbles back together again.
All world markets will still plunge to new lows, and my forecasts stand: Dow 5000. Nasdaq 800.
Best wishes and God bless,
Martin with Larry
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