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Surviving A Global Depression - Stock Markets

Updated on January 25, 2009

Low: Service and retail companies would be most severely affected as people would avoid unnecessary shopping on anything but more or less basic staples. These companies could see an overall 30 percent drop in share price, with many marginal companies folding altogether. The industrial sector would be hit the economic storm resulting in curtailed productivity of approximately 30 percent, which could result in a share price drop of about 50 percent. These drops would have a knock-on effect through the economy and most leading indicators could fall by approximately 40 percent. The worst performing companies would be in nonessential products and services such as high-priced clothing, cosmetics, jewelry, sports cars, high-end electronics, etc. Potential winners would be food, energy and utility companies, as prices are certain to rise in these sectors and would represent the wisest share investment. The overall market would not be expected to fully recover to pre-crash balance for at least 36 to 48 months.

Medium: This much higher level of unemployment and loss of global consumer confidence caused by legitimate economic fears would have a notably stronger knock-on effect on the worldwide economy. Service, retail and manufacturing would be a washout, with share prices falling 80 percent or more. From this point, the Dow could drop below 2,000 unless it was drastically restructured to jettison the many failing blue-chip companies and skew the index to the very few "substinence" market segments which would maintain viability. Many global brands wouldn’t survive this shakedown and would disappear or be bought out at bargain-basement prices by raiders. Internet stocks might skyrocket as those who could afford it would turn to electronic communication and commerce as they shun the wilting overhead costs of traditional bricks and mortar companies. Transportation would be severely hit as people avoided travel of any kind. Airlines would be hardest hit, many fatally. Energy prices would skew significantly as the demand for motor fuels diminished but electricity demands rose. The overall market would not be expected to fully recover to pre-crash balance for at least six to eight years.

Individual savings could be hit hard as well if the banking system crumbled under the impact of a global depression.

Low: The effect of a Dow at 6,000 will affect banks the most, as residential and commercial estate values deflate much further than currently to almost unimaginable levels, and commercial loans go sour by the trillions. Even though the banks are covered by various Federal Deposit Insurances, these funds don’t have the reserve capacity to bail out a number of large bank failures all at once. These fears may lead to a run on the banks, which could push some of the weaker ones over the brink surprisingly quickly.

Medium: The banks are clearly the most vulnerable sector (next to discretionary products and services) and savings will suffer in the inevitable runs. The exposure of the banks to a collapse is in the many trillions of dollars, a sum that is well beyond any possible bailout structure which would not massively devaluate all world currencies to Zimbabwean levels where a loaf of bread currently costs $20 billion.

Next: Surviving A Global Depression – Pensions & Investments

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