Dow to Fall ANOTHER 2,200 Points

by Martin D. Weiss, Ph.D. 10-07-08

Today's 508-point plunge brings the Dow closer to our long-standing target of 7,200. But to get there, it still has a long way to fall - over 2,200 points.

And if credit markets continue to shut down the U.S. economy, it's not safe to assume that 7,200 will be the ultimate bottom.

Look. Ever since this credit crisis began 13 months ago, Wall Street has been hoping that Washington could prevent a great fall - that it had the power to pump up, bail out, maneuver, and manipulate.

So as long as those hopes were alive, the stock market held its own - even as the mortgage market collapsed and even as bank balance sheets imploded.

But now those hopes have been dashed.

That's no surprise to us or to Money and Markets readers. What is surprising is that Fed Chairman Bernanke still thinks he's learned the lessons of the 1930s. But here's one of the many lessons he's apparently missed:

Whenever President Hoover Tried to Give

A Pep Talk, the Market Crashed Some More

After the Crash of 1929, President Hoover called together a group of the nation's business leaders for a special meeting in Washington. His message to the executives went something like this:

"When you go back home tonight, you're going to do the right thing for our country. You're not going to lay off employees. You're not going to stop hiring. You're going to do everything in your power to keep the economy going."

But instead of following his directive, they did precisely the opposite, taking major steps to reduce their work force. Their reasoning:

"If the President is taking the extraordinary measure of calling us to an emergency meeting in Washington - if the president is so concerned that he feels compelled to tell us how to run our business - then that must mean the economy is actually a heck of lot worse than we thought it was."

The same perverse pattern is spreading throughout the financial markets this time. Two prime examples:

On Friday, when the President signed into law the $700 billion bailout package, instead of bolstering confidence, it turned out to be a major blow to confidence.

And today, when the Fed announced it was taking the extremely radical measure of buying corporate commercial paper, instead of reducing pressure on the financial markets, it merely spread the fear.

This is not exactly the recipe for a bottom in the Dow. Quite the contrary, consider any rally - no matter how fleeting - a selling opportunity.