How Long Will the Stock Market De-Unraveling Take?

By Aaron Task in Yahoo Finance

If 1987 was like being in a bad accident, this market is like running into a bully who beats you up and takes your lunch every day, day after day. In that regard, the current market upheaval is "more insidious" than the 1987 crash, says John Roque, technical analyst at Natixis Bleichroeder.

Whether 1987 or 1929, the now year-long slump already ranks among the worst in U.S. market history. Both the Dow and S&P are now down more than 40% from their 2007 peaks, the worst bear market since 1973-'74, when the Dow fell 45% in two years.

Given the historical nature of the current decline, it's useful (and wise) to recall how the market fared in prior periods of prolonged distress, as Roque recently did in a report entitled "Don't Know Much About History."

• From 1909 to 1919, the Dow was essentially flat for 13 years.
• After peaking in 1929, the Dow didn't make a new all-time high until 1957, nearly 30 years later.
• From 1965 to 1982, the Dow was essentially flat for 16 years.

In other words "it takes time" to recover from the kind of drops occurring now, Roque says. Expectations for a rapid recovery a like expecting a basketball player who's suffered a serious knee injury to start playing at full speed right away.

If there's any solace in this grim tale is that's the Dow and S&P are now back to 1998 levels, meaning we're 10 years into the latest period of prolonged market malaise.

Yahoo Finance on Nouriel Roubini

By Aaron Task:

Today's global rate cuts have reduced the risk of a market crash, but won't resolve the underlying crisis, says NYU economist Nouriel Roubini of RGE Monitor.

But the financial market crisis has unfolded even quicker than Roubini expected (which is saying something), and the economist now thinks the Dow and S&P will suffer 50% declines from last October's peak vs. 40% previously.

In other words, the Dow is going to 7,000, but over the course of months vs. days if Roubini is right, as -- unfortunately for bulls -- he mostly has been for the past two years.

"The policy response is going to become more aggressive [but] a steady flow of bad financial and macro economic news is going to push down equity markets," he says, forecasting a real bottom won't be hit until "sometime next year."

Because of growing slack in the global economy, Roubini says deflation is going to become a much bigger threat in the next six months vs. inflation. In such an environment, cash, Treasuries and gold are the only safe bets he says -- provided your holdings are within the FDIC's new $250,000 insurance cap.