The Dow Jones industrial average is down one-third from its high a year ago.

How does that compare with previous downturns?

The stock market lost almost 90 percent of its value during the Great Depression. During the most recent bear market, which lasted from March 2000 to October 2002, the market lost about 50 percent.

Since 1926, there have been 18 bear markets, a situation usually declared when a stock index drops more than 20 percent from its previous peak.

During the average bear market, the Standard & Poor’s 500 index has declined 36 percent, according to the Leuthold Group, a Minneapolis investment firm.

Coincidentally, on Tuesday the S&P 500 was down 36 percent from its high on Oct. 9, 2007.

[via ScrippsNews]

When will this Prime Minister do something show he cares about this unprecedented collapse more or less average decline in stock prices?



  1. Now I’m just plain starting to feel bad about how hard I’ve been on Andrew, low these lase few months.

    He’s seemingly the lone voice of sanity these days.

  2. The stock market may be reacting to the credit crisis and not, in itself, be the story. For what it’s worth, you could look at the daily spread between the Canada bank rate and the 1-month commercial paper rate. Since 1998, the commercial paper rate had never been as much as 35 bp above the bank rate – until August 2007. During the past month, this spread has regularly hit record highs (43 bp on Sept. 14, 45 bp on Sept. 17, 50 bp on Oct. 2, 53 bp on Oct. 3). I think this is plausible evidence of the credit crunch hitting Canada.

  3. Don’t worry, Kody, I’ll disappoint you again soon.

  4. heh

  5. I think a question will arise sooner or later: why did Mr. Harper decide to go for the election when he did? Was it the blinding light of the possibility of a majority government that flashed into his eyes with the 40% polls was giving him? Did he as an economist realized that the economic outlook is not looking very nice and it doom from here on when it comes to the Tories fortunes? It sure looks like the conservatives with their ideology first, common sense another day, are the worst thing that could happen to a stable economy.

  6. Mr. Coyne, I couldn’t agree with you more about the insipidity of the opposition’s rhetoric (esp. during the English-language debate), but in all honesty isn’t this part of the political game? So why is the PM playing checkers here? All it would take would be a few vague, descriptive sentences of how “times are tough, but we’ll all stick together as a nation” etc. I’d rank morale-boosting pretty high on the list of a general’s responsibilities, even if he has to sing a few songs in drag to achieve it.

  7. Ah, but he did attempt a morale-booster, with that inspiring line about how this needless panic had spurred some great buying opportunities in the markets.

    I mean.. how much more empathy do you need?

    Oh wait.. that didn’t work out too well.. so he’s now using his mother as a political prop to make him Mr. Sweater Guy again.

  8. Well, at least Kody is not predicting where the Dow and TSX will be in the next few days…yet.

  9. Anybody aware of the characteristics of clinical psychopathy?

    “Some researchers have commented that psychopaths ‘know the words but not the music,’ a statement that accurately captures their cold and empty core. This hollow core serves them well, though, by making them effective human predators. Not only are psychopaths unconcerned about the impact of their own behavior on others — or of possible retribution — they more often than not will blame their victim if they are caught.”

    — from Snakes in Suits: When Psychopaths Go to Work, by Paul Babiak and Robert D. Hare

  10. How long do we get to pretend this problem is isolated to the world of high finance?

  11. You’re right. Nothing here. Or there.
    Last year’s masters of the universe are having self-esteem issues this year. That’s all.

  12. Funny, the version of the story my computer showed me had a few more lines after the passage quoted here:

    If this was an average bear market, it would be over by now.

    But given the severity of the financial crisis, many observers say the current bear will look more like Ursa Major than Ursa Minor.

    “I am inclined to think this would be deeper than an average bear market,” says Paul Krsek, chief investment officer of K&A Asset Management in Napa, Calif. “We keep getting surprised by the depth and breadth of this problem. Every day we turn a new page in this book, and every day there’s a nasty surprise on the next page.”

  13. 10,211





  14. Here’s hoping that rural properties in southern France will plummet in value. Soon! I might decide to hang out there for a while. Can’t understand french all that well, so that would be a bonus to the well being of the brain.

  15. Ah, trust the lay folks to quote a few stats and declare the problem over. Such casual treatment of the situation at hand is likely reflected in your portfolio statements.

    But recognize the irony here: you’ve accused politicians of overstating an issue and here you are understating the issue with puerile alacrity.

    Do not confuse a bounce (which under normal circumstances would have happened days and many points ago) with a bottom. Equity markets are overdue for some lift here yet despite throwing the kitchen sink at them – bailout packages galore, rate cuts, shorting bans, nationalizing some of the worst performers… well the list goes on and on and still markets have been unable to return to anything resembling an orderly state. There is a reason for that. These are not “average” times or declines.

    I’ll say it again: do not confuse a bounce with a bottom, and remember, the market is a forward leaning indicator. There is much more pain ahead on both sides of the border.

  16. Not to burst your bubble, Andrew, but if the Dow was the only problem then we wouldn’t be talking about it. But it’s not about the Dow. It’s about Moscow having to shut trading down at least 3 times in the past 2 weeks alone, it’s about the run on money market funds that briefly scared the hell out of central bank around the world, it’s about the reports out of the US of tight credit affecting access to car loans and mortgages, it’s about UK banks going under, and (today at least) it’s about our Big 5 banks rebelling against the central bank rate cut action.

    The reason people got their backs up over Harper talking about buying opportunities is that the stock market madness this weel is only one small part of the story. He was missing the point. And I think you know that. You’re a very bright guy who knows his way around the wonderful world of macroeconomics. The fact that what Harper said was accurate doesn’t matter. Many people are worried about what’s coming, not just about what’s happened over the past couple of weeks, or months, or year.

  17. Oh, and I would like to observe how the authentic French do it their way!

  18. Look, I’m not an economist. Nor do I own stocks. But,as an earner of 7.75@hour and a single parent and student, I probably qualify as ‘ordinary’.
    And I am scared. Scared of losing my job.
    Although Coyne tells me I have nothing to fear

  19. its not his fault if you become a market correction

  20. Potter,

    And further down from that are people saying the market has bottomed out. In other words, the same story that stock market columnists write every single day of their lives: “Some people think the market might go down. On the other hand, some think it might go up.”

    All we know is where the stock market has gone. Nobody knows where it’s going.

  21. Can someone kindly explain to me what this actually means?
    Forgive me for my ignorance, but how do fluctations in the stock market affect us lesser mmortals?

  22. Aside from initial public offerings, which allow companies to raise capital, the markets is where the captains of industry park their money when they’re not really using it.

    What it means is a whole bunch of numbers that sooner or later might have been cashed out of the market and turned into investment in something real for a change are missing in action.

    What it means is a few bruised egos for important people and a slowdown for everybody else.

  23. Thats what i figured, thanks.:)
    noone I’ve met has yet been zble to ”define’lowdown, though.
    And there is nothing scarier than the unknown.

  24. *slowdown*

  25. Its a reference to the speed of doing business.

    Think of renovating your house. If you think you’ll have the cash coming in to pay for it you’ll do it quick as you can. If you think you’re budget might not handle it, you slow down.

  26. your

  27. What’s with the rumours that the government’s been running a seriously increasing operational deficit for months? Since at least July? See the Finance Department’s Fiscal Monitor of 26 September: http://www.fin.gc.ca/FISCMON/2008-07e.html

    Harper’s been evasive, mumbling things like “in this election our position is we’re not going to run deficits” and “nominal income” is all right. Maybe this is part of the reason he was in such a hurry to call an election.

  28. Right.
    basically, I guess, what I need to know (and what most people I know want to know) is how a slowdown is going to affect a person’s bottom line. I’d r e a l l y appreciate keeping my job, thanks.

  29. Hi Andrew:

    what percentage
    of your assets are currently
    in stocks versus a year ago?


  30. Sophie, in the case of a bad recession, it would depend on what sector one is employed in. Businesss that sell luxury items would be harder hit than businesses that sell essentials, unless the luxuries were for millionaires; a movie theatre wouldn’t be affected, for example, but a store selling $300 sneakers would be. Or a whole region might be affected by the loss of a lot of jobs in one factory: I lived in the Upper Gatineau for part of last year and it was gearing up for hard times (in the midst of our super-prosperity!) as the sawmill in Low was going to close. Something like that affects the whole of the local economy.

    That’s about as far as I can go, ’cause I’m scared of all the economists who hang around Mr. Coyne’s blog . . . They get secret bonuses from the Economists’ Guild for eviscerating amateurs like me . . .

  31. Funny! I thought the stock market was all about letting each and every citizen be part of the action.

  32. alright, and I’m sorry to keep harping onabout this-but my region is supported by pulp and paper….
    I’m not sure what that would be considered as.

  33. There are certainly people here who know the economics of that industry better than I, but I do know that US home construction (a main consumer of our wood) has already taken a huge hit over the last year, and I wonder if it could really go much lower – it was one of the first casualties of the housing bubble. So if your local pulp & paper industry is still going it seems to me, FWIW, that you and your neighbours are in good shape.

  34. Jody: On Wednesday I put together an 8 year analysis of Canadian government cash flow and noted (easily understood chart at the link on my name) this calendar year the Harper government has racked up $23 billion in debt; this fiscal year its $20.3 billion. This number is significantly above any average for the periods in question when compared to any of the past years during this decade. Something is amiss and the public deserves a straight answer before E-Day.

    Sophie: your employer’s business is heavily tied to consumer discretionary and consumer staples as well as home building and other sectors that use your products. Some are very economically sensitive (like home building) while others are not (everyone needs toilet paper). The ability for your mill to operate in a bad economic climate depends a lot on what products it produces, who its major customers are (domestic or US export), where the Canadian dollar is pointing to.

    The stock market is a useful indicator of where business observers (market players) believe business (and therefore the economy) is headed. That forward looking picture is not very bright at the moment, and given the turmoil at the root of the system – the ability to lend and borrow money to run business – the picture is not likely to brighten much any time soon. Even if markets stabilize, it’ll be some time before confidence returns to business and consumers. A recession is all but a foregone conclusion in the U.S. and unlike Mr. Harper, most serious market participants here too believe Canada will experience a recession as well. Some areas of the country will suffer more than others.

    Bad equity markets affect other areas of the economy not immediately obvious beyond the price charts we see flashed on the news. Raising capital to fund new businesses or expansions is more difficult when equity or credit markets are poor (and they are acting very poorly indeed). Cost of borrowing is going up, for everyone but particularly for business. These costs will be passed on where they can, or absorbed by the business resulting in a further decrease in profitability which one day gets translated into… lower stock prices.

    And so on.

    Harper is in a difficult position. He can’t be Mr. Doom and Gloom, since he is Chief Cheerleader.

    But the reality is there is reason for doom and gloom.

    And that’s why we are having an election now. Harper had hoped to get one in before things fell apart. He waited too long, and he may pay a significant price for that.

    His loss is Mr. Dion’s gain. That’s how it works.

  35. Geseric the Lame,

    “Think of renovating your house. If you think you’ll have the cash coming in to pay for it you’ll do it quick as you can. If you think you’re budget might not handle it, you slow down.”

    Good analogy. And if you are a true conservative (as opposed to the other kind) you postpone the renovation until you can afford it. And you sure4 as heck don’t go invading your neighbours to take their building materials, because the cost of the incursion will exceed by far the cost of the renovation.

  36. Gee, and all the governments of the world had to do to turn this into (so far) just an average downturn in the stock markets was nationalize the largest insurance company in the world, and spend well over a trillion dollars in bailout packages.

    What might they need to do in the NEXT 30 days?

    Mr. Coyne’s correct that we can’t predict exactly what will happen in the next thirty days, but given the extraordinary lengths that the governments of the world have gone to in the last thirty days, I’m less sure as to why he’s seems so optimistic (or, at least, not pessimistic).

    I’d believe this was the bottom if I didn’t hear Mort Zuckerman on PBS every week telling me the worst is yet to come. Everybody thought things would start looking up after Bear Stearns went under. Then everyone thought Lehman Brothers going under was the bottom. Then everyone thought nationalizing AIG was gonna be just about the end. Then the $700 billion bailout was the ticket.

    You’ll forgive me if I worry that there are other shoes still floating in mid air.

  37. “…And you sure4 as heck don’t go invading your neighbours to take their building materials, because the cost of the incursion will exceed by far the cost of the renovation.”

    But if you’re a good little mover and shaker its incumbent upon you to look for ways to get someone else to pay for the invasion.

  38. more or less average decline in stock prices

    Nice try, Mr. Coyne, but the markets are at the same level they reached in March of 2000. That means they’ve experienced nearly a decade with no gain. The last time that happened was in the sixties and seventies. Do you remember how that worked out for the economy?

  39. Robert,

    And if you go back to 1995 it is a huge gain….coyne is referring to the pullback over recent relevant history rather than all the way back. The peak you are referring to is at the end of the tech bubble, then we pull backed and went sideways then up some again.

    There isnt anything extroidinary about the losses, as in no historical precedent to the % drop. What is hostroical is the gloabl nature of this problem and how little canada has been touched by this problem at a fundamental level.

    This isnt saying dont worry be happy but look at the actions others have HAD to take. The UK had to pledge 33% of its GDP to ensure its banking system was solvent and tkae positions in Banks. The US probably the same, and yets Canada has HAD to put ZERO, repeat ZERO taxpayer funds at risk to date.

    If everything is a disaster then nothing is. Those opposed to the conservatives are overinvesting themselves in gloom and doom. You need a disaster to make the narrative work.

    There will be real effects but you are triviallizing the real pain others are suffering by claiming that we are in similar straights.

    To provide a Canadian analogy, Its cold and windy outside, but right now the new weatherstripping and insulation are working well, our neighbours just had a window blown out and some shingles ripped off the roof. But you would be advised to put on an extra pair of socks and a sweater because its getting colder. We may need to go to the neighbours and help them fix their house.

  40. “To provide a Canadian analogy, Its cold and windy outside, but right now the new weatherstripping and insulation are working well, our neighbours just had a window blown out and some shingles ripped off the roof. But you would be advised to put on an extra pair of socks and a sweater because its getting colder. We may need to go to the neighbours and help them fix their house.”

    Thank you!!!!!

  41. “To provide a Canadian analogy, Its cold and windy outside, but right now the new weatherstripping and insulation are working well, our neighbours just had a window blown out and some shingles ripped off the roof. But you would be advised to put on an extra pair of socks and a sweater because its getting colder. We may need to go to the neighbours and help them fix their house.”

    I’m not so sure that analogy’s quite accurate, as it presumes that the American house can collapse and our house will be just fine. That makes no sense, since large portions of our “house” are substantially dependent on the stability of the American “house”. I’d liken the North American economy more to an apartment building, where we occupy one floor, and the Americans occupy 10 (OK, the Mexicans have part of a floor too). When you live in an apartment building, even if your floor was better constructed than the other floors in the building it still makes little sense to be entirely sanguine if you suspect the rest of your building may not be so stable.

    Especially if your floor of the building is built on top of the other 10 floors.

  42. Let me give you a better analogy. There’s a storm blowing across the US that is headed toward Canada. Sure the sun is still shining here but that won’t last much longer and Harper thinks it’s the perfect time to plan a picnic.

  43. Stop the negative commentary or the market will get low self-esteem again.

    “There, there, market. Don’t worry. You just half to drop a few pounds, get a kicky new hairdo and let a smile be your umbrella.”

  44. I see a Reuters report that Canada’s Banking has been rated number one in the world, I am sure we will see this all over the mainstream media in Canada the next few days

  45. Shorter Coyne:

    “Shurely the stock market will rebound! It hasn’t yet, I have no reason to believe so. But I’ll assert it will, and thus this is no big deal!”

    Peter: the point is not that Canada’s banks will collapse. The point is that Canadians could pay a heavy price for the American ones doing so.

    But go ahead. Keep on saying everything’s awesome.

  46. Since this topic is even more important than politics, one would hope that the mere cheerleaders and doomsayers who are merely parroting lines in support of their particular aspiration for this electoral contest could stand aside; then perhaps we could have a rational discussion on where the economy is likely to go.

    While this might not change the electoral outcome, at least a more honest chat about the subject might prove useful to individuals.

    Or you can just have the doom and no discussion. I can play that game, but I’m not a lay person with no knowledge in this area.

    Be prepared for another 15 – 20% decline in Canada’s financial institutions market value; possibly another 35 – 40% drop in energy shares. The preconditions for either event is simply a serious recession and that is pretty much a given.

    Budget 2008 was developed in an era of Canada as a “global energy superpower”, while prices on commodities were still rising. Its normal for government to downplay revenue expectations to some degree – build some slack into the plan for contingencies.

    However, and this is very important, it is completely unrealistic to expect the Ministry of Finance planned for the huge unravelling of the U.S. and global financial system and as well planned for a rapid and massive deep (and still not over) turn around in commodity prices across the board.

    Whatever expectations Finance had when they built that budget have surely been dashed.

    Any of us who have actually run businesses or who are serious investors know how that turns out.

  47. Just in case anyone’s interested:

    October 9th:

    TSX: DOWN 456 points, slips below 10,000

    DOW: DOWN 678 points, slips below 9,000

  48. I think I understand now.
    The thing i have with this, is, even if Coyne is right and everyhting is fine, people don’t think it’s fine. People who’ve watched hlf their coworkers lose their jobs and had their own salaries cut in half know that something is not right.

    So they get scared.
    People who are scared are going to hoard their money, not put it into the economy.
    Seems to me that we created our own recession back in March when DOOOOOOOOOM was the brief summary of every business columnist, because it scared people. I know people who had planned on, say, putting a new roof on their house or fixing the back windows in their car, who are now keeping their money ‘for a rainy day’, because with the rapid-fire cutting of salaries, they’re running scared (my life’s savings may or may not now be in a jar in a sock under my bed) because people don’t trust banks, they don’t trust the stock market, and they don’t trust politicians who say everything is fine.

    I think that made sense, but it was just based on personal observation, nothing scientific, so feel free to destroy me.

  49. People should be scared. But they should have been scared a long time ago. What’s occurring now did not start today. It didn’t start last week or even last year. But the business columnists were not worrying about what we are seeing – not many of them. The decline in the U.S. to most still looked like a garden variety market correction, but there was nothing usual about what is happening in the U.S., in the U.K., and around the world.

    Andrew is right in one area: there is little government can do now. Their time has past. But going forward, there is plenty they can do and it doesn’t fit in well with “conservative” ideology.

    This market crash is going to shake up a lot of things and in particular the notion of trust in market professionals is going to go out the window and stay outside for some time.

    Trust is going to be legislated, and that will reduce profitability for some time in the finance biz. But there’s a bright side – we’ll finally get more transparency forced down the throats of our public companies.

    But first some sort of bottom, if only a panic capitulation bounce and grind sideways for a while, has to happen. And soon. Meanwhile, in markets that are open while Canada sleeps, the Nikkei is off more than 10 percent as I write, Australia off more than 7%. China off almost 8%.

    Europe is going to be the first warning for us here.

    Sadly, our markets are closed Monday while the U.S. remains open. This is far from ideal when the stakes are so high.

  50. Excellent post, Michael.

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