Stock Plunge: Correction or Crash?

No one knows, so don’t get too caught up in guru-worshipping. Also don’t get fooled by sharp moves up: They’re meaningless (bear markets are defined by wild upward moves, as traders try to “call the bottom”).For what it’s worth, for the reasons below, we suspect we’re just at the beginning of a major stock and economic pullback (at least 30% down from peak on Dow).¬† We could easily be wrong, but from a management perspective, being aware of this possibility is smart. (Running your business or portfolio as if it is guaranteed to happen isn’t.)

Why We Think We’re Screwed:

  • Stocks still expensive by valid measure (such as cyclically adjusted P/E, which takes into account today’s inflated profit margins).
  • Credit crunch anything but “contained.”
  • Major engine of economic growth for last five years, housing, has completely broken down. We don’t see how we’ll escape this easily.

See Also: How Bad Could the Market Crash Get? Very

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