[This article is distributed for non-profit purposes only to those who have expressed an interest in receiving such material in accordance with Fair Use Copyright Practices.]

[Note: This is an excellent analysis by CBS Market Watch and Thom Calandra. August 14, remains one of many possible doomsdays in the near future. That is the deadline by which all CEOs must either restate their corporate earnings or face criminal penalties. At that time it is possible that as much as another $1 trillion of shareholder equity might be wiped out. In addition, FTW has been monitoring reports of subpoena issuance to J.P. Morgan, Citigroup and other major banking institutions over criminal involvement with Enron. In addition, derivatives bubbles estimated at between $25 and $50 trillion held by these banks stand on the verge of collapse with either a further plunge in the Dow or a rise in the gold price that cannot be contained by the Gold Cabal and the Plunge Protection Team.

Last week, FTW received information from three credible and experienced sources that the Bank of America had made an urgent and secret appeal to the Federal Reserve for an emergency bailout. We are watching all of these developments closely and will have updated reports in the near future. Additional reports indicate that the housing bubble is also in a very precarious position. ED]

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THOM CALANDRA'S STOCKWATCH

History of bull markets rife with folly

Commentary: The worst of this episode isn't behind us

By Thom Calandra, CBS.MarketWatch.com
Last Update: 10:36 AM ET July 30, 2002


SAN FRANCISCO (CBS.MW) -- Wall Street says the worst of the stock market is behind us. The brokers' highly paid strategists, sweating bullets, are urging America to buy early and often.

History will demonstrate the stock market's cheerleaders are premature. Just look at the three great bull markets of modern history. The biggest one we know all about: it ended two years ago, and its aftermath has bankrupted thousands of companies and erased $7 trillion or more of American wealth.

The other two great bull markets? One was during America's roaring 1920s, when the Dow Jones Industrial Average rose more than 400 percent. "The Jazz Age was wicked and monstrous and silly. Unfortunately, I had a good time," newspaper columnist Heywood Broun once said.

The dancing and drinking of those follies came to a sober end in 1929, marked in red ink by the October crash. History's other great bull market in stocks was in Tokyo during the 1980s. Japanese stocks (and real estate) pumped fresh air into the term "market bubble."

From 1923 to 1929, the Dow gained about 445 percent. Sure, there were at least six rallies of 20 percent or more in the early 1930s. In 1929, barely a month after the great crash of October, the Dow began an almost 50 percent climb that spanned five months of that year. Other rallies came in 1930 and 1931, when the Dow leaped 35 percent.

Yet the Dow hit its low of the span in July 1932, at something like 41. That level was far lower than the Dow's price nine years earlier: 85 or so. As most veterans of that age tell us, the U.S. economy didn't begin to recover until after World War II, more than 15 years after the October 1929 crash.

In Tokyo, the Japanese bubble drove stocks to about 39,000 on the Nikkei 225 (65599W10: news, chart, profile). That was in 1989, when the Tokyo market sold for 100 times earnings.

Once again, numerous rallies ensued. The Nikkei rose almost 20 percent months after the December 1989 zenith. About a year later, Japan's benchmark index rose by more than a third in a five-month span, into the spring of 1991.
As we know now, the Nikkei hasn't stopped skidding. It's been as low as 9,420 in the past year, and as high as 12,081. The number to remember, though, is where the Nikkei started its amazing run -- 6,850 in 1984 -- before reaching its pinnacle of 39,000.

Our modern American bull market began in 1990, with the Dow (INDU: news, chart, profile) at 2,365. When the 10-year rally began to unravel, the Dow was almost 12,000 -- in January 2000. A total gain of almost 500 percent.
Raging bull markets, when they crash, always end lower than where they started. Yes, Wall Street most likely will enjoy the kind of snapback rallies we are seeing, when the Dow stages 400-point-plus rallies. The upside volume on the New York Stock Exchange Monday amounted to 91 percent of the total -- a testament to the power of program trading, corporate buybacks, short-covering by profitable hedge funds and individuals who pray the worst is over for their fading portfolios.
The folks on Wall Street say this time will be different. That this rally will last. If history doesn't provide the proper context for that pipedream, maybe valuations will.

America's 500 biggest stocks are selling for anywhere between 25 and 40 times one year's earnings, depending on how one accounts for nonrecurring charges. Even at the cheap end of that range, the S&P 500 ($SPX: news, chart, profile) is still selling for more than twice the historical average for a bear-market low.

The highest price-earnings ratio seen at a major market bottom during the past 60 years is approximately 12.5, technician Paul F. Desmond at Lowry's Reports tells me. That was in June 1962.

Next time a guy tells you this time will be different, ask if he or she works for a brokerage, investment bank, pension fund or mutual fund manager. If the answer is no, ask when was the last time they made money in this market of sick stocks.

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Thom Calandra's StockWatch is in its seventh year at CBS MarketWatch.