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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Today Marks Two Years After Dow, S&P 500 Highs: Where Are We Now?

Today marks the two-year anniversary of the historic highs for the Dow and the S&P 500.

Let's take a look at where we were and where we are now.

On Oct. 9, 2007, the Dow Jones Industrial Index of 30 blue-chip stocks peaked at 14164.

The broader S&P 500 peaked at 1565. (The tech-heavy Nasdaq hit its 2007 peak of 2859 a couple of weeks later, but its historic high came just before the dot-com crash in early 2000.)

So that's where we were. Where are we now?

The Dow closed today at 9864, 31 percent off its historic high.

The S&P 500 closed today at 1071, 32 percent off its historic high.

So that means it's taken us two full years to get back a little more than two-thirds of what was in our 401(k) accounts in October 2007.

But things are looking better than they did when the markets hit their most recent bottom on March 9 (Dow: 6,547; S&P 500: 676.) And, if you kept your retirement money in stocks as the market tanked, think about it this way: you were buying a lot more stock on the cheap. As the markets have come back, you've seen that gain.

I have written before that Dow 14000 may once again be a possibility but it will take a lot longer to reach this time, and that's because of deleveraging.

Part of the big stock market run up to October 2007 was built on highly leveraged earnings. If you owned stock in Goldman Sachs, for instance, your stock soared because Goldman was borrowing lots of money to invest to make money. It had a debt-to-equity ratio of 30-to-1.

That's fine on the way up, but when those debts start coming due and you don't have the equity to pay them back, well, Lehman Brothers collapses, for instance.

In the coming years, it will be highly unlikely to see big banks and financial institutions run up such leverage; heck, it may be outlawed by Congress.

On CNBC this morning, 43-year veteran UBS floor manager Art Cashin was asked if we'll see those Dow and S&P 500 highs again. Here's what he said:

"i think you might see them but I don't think you'll substantially exceed them. We're in an extended cycle now that has occurred over and over again. It's like the Bible says: 'Seven lean years and seven fat years.' I think we're going to be in a period of churning sideways for several years to come."

If Cashin's right, that means that even though you got back two-thirds of your retirement savings in two years, it could take several more years to get back that final one-third. Much less get ahead of where you were on Oct. 9, 2007.

-- Frank Ahrens
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By Frank Ahrens  |  October 9, 2009; 5:25 PM ET
Categories:  The Ticker  | Tags: Art Cashin, Dow Jones, Goldman Sachs, Lehman Brothers, nasdaq, s&p 500  
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I get it. I've wondered why the DOW, stock market could go up 50% while 30 Million Americans are out of work or under-employed and 7 Million American homes have been foreclosed on.

I must be losing it. I've argued that the DOW, now heading over 10000 was a manipulated market. Maybe I was wrong.

Maybe, the too big to fail Wall Street Corporations just out-smarted everyone again and found other buyers for their products and services in emerging and third world countries to replace the 37 Million scathed Americans.

Yeah, that's it! Now I get it. Maybe that's why President Obama bet on the too big to fail U.S. Corporations and Wall Street instead of helping average American workers and home owners. Apparently, he got it a long time ago.


Richard Michael Abraham, Founder

The REDI Foundation

Posted by: info96 | October 14, 2009 12:08 AM | Report abuse

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