An editor (I assume he’d prefer to remain nameless) poked his head into my office a little while ago to inform to me that the Dow Jones Industrials average had passed 9,000 today. So I did what every modern journalist does would do in such a situation and Googled “9,000 dow.” That led me to a blog post by Paul Krugman, headlined “Dow 9000!” He wrote it Oct. 9, 2008.
Remember October 2008? That was back when the financial world was still falling apart. Fixed-income markets were still completely frozen (which was the point of Krugman’s post). The bank bailout bill had been signed into law, but nobody knew yet if it was going to work. Anybody with half a lick of sense could see we were headed into a deep, deep recession. In a Fortune article I wrote dated Oct. 13, I quote UC Berkeley economist Barry Eichengreen saying:
I doubt that we’ll be able to avoid double-digit unemployment, but I’m still confident we can avoid 24% unemployment like in 1933.
So all we’ve done is gotten back to where we were in those gloomy days. In inflation-adjusted terms, we’re at about the level that prevailed before Alan Greenspan made his “irrational exuberance” speech in December 1996.
None of this tells us anything about where the Dow is headed, of course. It’s just an indication of how bad things have been, for how long. And former Merrill Lynch North America economist David Rosenberg, now back home in Canada at the firm Gluskin Sheff, figures we have some more badness ahead of us:
[T]he S&P 500 surged 15% in the second quarter and what we did was go back in the history books to see what happens to the economy the very next quarter typically after such a big bounce and the answer is … just over 3% real GDP growth. … Now, for the market to build on such a rapid advance in the current quarter, history again suggests that we would need to see 5½% real GDP growth, which we give near-zero odds of occurring. Hence our call for a sputtering stock market through year-end. Too much growth — and hope — is priced in at this point.
I don’t know if that logic entirely holds. The big bounceback could simply reflect a correction of the extreme, the-world-is-about-to-end pessimism that prevailed in the early part of this year, not a bet that robust growth is in the offing. But I still have this feeling that Rosenberg’s prediction will turn out to be right.