Today the Dow Jones Utility Average had wicked downside action to the tune of 3.18%. It is said that the DJ Utility Average leads the market due to its more sophisticated investors seeking safety and income. This is especially reflected in the October 10, 2008 bottom that was reached in the index which was well ahead of the November 20, 2008 bottom experienced in the general stock market.
Today's action was significant because the Utility Average fell below the closing low of October 10, 2008. If this is any indication, with any follow through in the coming weeks, then we've got lots more to go on the downside.
Market Forecast
On November 21, 2008 I said:
Another factor that is of concern for this market is that the Dow Industrials broke through its 4% yield to finish Thursday November 20th at a yield of 4.12%. We can only guess that the Dow is headed to a yield of 5% or a closing price of 6226.
It looks increasingly like we're going to reach that 5% dividend yield on the Dow Jones Industrial Average. Currently, we're within 500 points of reaching the 5% yield on the index. The only problem is that the yield will have to go back down (4.99% to 4.01%) as the dividend cuts in the index take place. This would result in a lower price on the Dow in order to achieve the same dividend yield.
Bailout Watchlist
If you've been reading this blog for any amount of time you know that the current bailout of the financial system has failed miserably. Over $8.5 trillion has been distributed to various institutions with little or no impact. As the Dow Jones Industrial Average reaches new lows, I want to point out the other bailouts that have passed into history but are not being counted as failures as they should be since they only provided temporary reprieves that would ultimately come back to haunt us in bigger and broader reaching fashion. So far, our stock market, as indicated by the Dow Jones Industrial Average, has managed to fall back to 1996 levels. This means that the following bailouts have been a waste of "market stabilizing" money:
Bailout Watchlist
If you've been reading this blog for any amount of time you know that the current bailout of the financial system has failed miserably. Over $8.5 trillion has been distributed to various institutions with little or no impact. As the Dow Jones Industrial Average reaches new lows, I want to point out the other bailouts that have passed into history but are not being counted as failures as they should be since they only provided temporary reprieves that would ultimately come back to haunt us in bigger and broader reaching fashion. So far, our stock market, as indicated by the Dow Jones Industrial Average, has managed to fall back to 1996 levels. This means that the following bailouts have been a waste of "market stabilizing" money:
- Airlines (2001) $3.171 billion
- Brazil (1998) $30 billion
- Long Term Capital Management (1998) $3.5 billion
- Thailand, S. Korea, Russia, Indonesia (1998) $141 billion
As we go back in time, I'll add more " market stabilizing" bailout to the tally. Next up is the Mexican Peso bailout of 1994. Unfortunately, we'd have to fall to the high 3000 level in order for that to occur. Please feel free to add to the list of items that were supposed to support or stabilize the markets but so far have been wiped out. Touc.
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