On the left hand, we have the daily DOW of 1929 until the real low was hit in 1932. In this process, the Dow lost 90% of its value from peak to trough. We will not have to repeat the full magnitude but to some degree that will be the way the global indices will trade in the next years. We are now in the last part of the early steep decline, which was followed by a 50% rally with 6 months but you see what happened thereafter. Just being realistic from today's situation brings us to the following assumptions. Developed countries (and we'll stick here to USA) are trading at 14 times forward earnings, that by itself is an over-valuation of at least 40% and over the coming years the assumption of $89 profit for the SPX can easily drop to $50 with a 8 times PE. That would give us a SPX of 400 and that is, by all means, a realistic target within 2 years.
Banks balance sheet repair in the last crisis early 90's took 3-4 years but this time, through globalization, it's a different and much more severe situation. $800 tril. in derivatives is insane with all stock markets value less than $40 tril. We all would wonder which government can print that kind of money, as more and more losses will unfold. For now, the governments are guaranteeing but sometime in the near future you might consider which of those guarantees are worth the paper.
The rule to take away the mark to market regulation is another severe mistake. It just dilutes the situation to buy time. The same rules made big parts of the profits which Wall Street and other banks claimed to have made in the 'good' times. Another huge problem that is hanging above us is also a spot of trillions in denial.
The health care systems of the developed countries will collapse with the baby-boomer generation retiring in 10 years -- but that's an entirely different topic and we'll discuss that at a different point.
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