Major Damage - Market Trading At Many Lows

In response to my latest article comparing the recent crash in the Dow to the Great Depression crash, a friend forwarded me an article by Barron's writer Michael Santoli entitled "Major Damage." In the article Santoli lists some interesting facts about the current market:

The virtually unwitnessed level of damage in a short period almost defies hyperbole. After Thursday's drop to an 11-year low on the S&P 500, the index was farther below its all-time high than at any time since 1949. The year 2008, had it ended then, would rank as the worst since 1872 at least. The S&P hadn't been as far below its 200-day average since 1932. Nearly 40% of S&P 500 stocks were below $4 billion in market capitalization, the minimum new stocks must meet to be added to the index. More than 40% of the stocks in the Russell 3000 were trading below $10.

Investment-grade corporate bonds have outperformed stocks since 1980. The S&P 500's indicated dividend yield rose above the 10-year Treasury yield for the first time since around the time the Giants and Colts faced off in their classic 1958 championship game.

He then writes:

At the moment, the only close precedents for the past year are a pair of Great Depression-era bear phases. Andrew Burkly of Brown Brothers Harriman noted Friday that the current bear was 284 days old, and was down almost exactly as much as the 1929-'32 and '37-'38 bear markets were after 284 days.

And this was about the point where the paths of those earlier markets diverged, with the '29-'32 example sinking relentlessly to an 86% loss, and the '37-'38 version beginning a bounce that recouped 50% of its losses over six months before rolling over again. This history offers no immediate trading edge, but seems to suggest that being aggressively bearish from recent levels requires a belief that the economic implications of the present crisis at least rhyme with the Depression's.

I don't understand though why there there has to be only two paths - down 86% or up by 50%. In my opinion there could be a third. Maybe we are not reprising the Great Depression but the economic mess we are in is no typical recession either. How about if we lose another 10-20% and then bounce around at that level for the next couple of years?

Baby boomers who invested trillions in this market are pulling out as they watch their retirement savings shrink. All of the counsel to stay the course and invest in the long-run doesn't provide any solace to those in or nearing retirement. Therefore, there is a large, wealthy segment of the population that may be permanently out of the market and that will have an impact for years to come.