Mean Reversion

Stock markets tend to migrate back to the mean every few years.  We had an incredible ramp from 2003-2007 that propelled the DJIA to eclipsing 14,000.  Stories of the greatest housing boom, BRIC growth, ag shortages & energy conundrums were headlines every single day.  Traders and investors alike took to the frenzy and helped create one of the best 5-year stretches in recent memory.  Even mom-n-pops wanted to become realtors.

And then the bust.  It took only a year to bring us back to prints we last saw a decade ago.  The momentum fizzled and paper wealth destroyed. More important, the US financial system changed.  We lost Bear, Countrywide, AIG, Lehman, Merrill, WaMu...and so many more.  Goldman and Morgan are traditional banks now.  We need government intervention and look forward to foreign support.  We can't stand on our own two legs.  It's a sad, sad time in American history.

I imagine that we still have a little more falling to go.  Maybe by the end of 2009 we'll learn to crawl again.  And then walk in 2010 back to the mean.  But watch out 2012...we'll be jogging and then by 2016 it's marathon time.  And you know what happens from there.