PANIC: Dow Falls 678.91 to 8579.19

The Dow Jones Industrial Average, the most revered index on the planet, has been bruised and battered to a shell of its former self over the past month.

On September 8, the index closed at 11,510.74. A month later - just 23 trading days - it is nearly 3000 points lower, a decline of 25.5%, much of it occurring in just the past seven sessions.

From its high a year ago at 14,250, the Dow is now down a full 40%, with the other major indices in similar straits.

While the Dow is a narrow measure of only 30 "blue chip" stocks, the broadest measure, the NYSE Composite Index, is off 44% from its closing high of 10,301.49. These are 5-year lows, comparable to levels in 2003, when the economy was still recovering from the triple blows of the dotcom bust, 9/11 and a serious, though short, recession.

It is as though the last four years never existed. Many on Wall Street are today wishing that we could go back to 1999, when the biggest concern was whether computers and clocks would still be functioning when the clock struck 12:01 on January 1, 2000.

While the Y2K scare turned out to be more hype than holocaust, there's no denying the rapid descent of stocks and the seriousness of the amount of capital destroyed over the past 12 months. It's in the trillions of dollars just in the US, and worldwide, probably close to the order of $30-$50 trillion.

Dow 8,579.19 -678.91; NASDAQ 1,645.12 -95.21; S&P 500 909.92 -75.02; NYSE Composite 5,809.96 Down 496.39

Still, most of us have not seen any clear indication in our day-to-day lives of the collapse of financial stability. People are still driving around, going to work, getting paid and continuing pretty much as normal. The damage has been to investments, pension funds and 401 k plans. Also, people saddled with debt, especially those who bought homes at inflated values over the past 4-6 years and now have a mortgage worth more than the home they live in, are feeling pinched and afraid.

It is likely, if this crisis continues and "trickles down" to mainstream businesses and the general population, that a robust round of layoffs could be weeks or months away.

The real fear now is that pension funds of all kinds - corporate, municipal and state-run - could be caught in the downdraft and unable to meet their full obligations to retirees. if that unpleasant scenario occurs in many areas, we then will be facing the next great depression.

Thursday's selling was prompted by little more than an exaggerated level of fear. While indexes in the Far East and Europe were mostly lower, the US markets were battered far beyond the levels in other parts of the world.

Market internals were once again dreadful, with declining issues outpacing advancers, 5731-771, an 8-1 margin. There were 2857 new lows and just 13 new highs. According to that measure, this is not yet over, though one has to wonder just how the downturn can be any more severe.

Volume was once again quite elevated as the panic selling feeds upon itself. One particular item which may have caused part of today's decline was the lifting of the ban on short-selling financial stocks.

NYSE Volume 2,013,890,000
NASDAQ Volume 2,989,760,000

Commodities markets fared better, but still suffered losses overall. Oil slipped another $1.81 to $86.62. Gold fell $20.00, to $886.50. Silver gained 10 cents to $11.88.

While I had expected the bottom to form around 9500, I suppose, in hindsight, that after being entirely bearish for the last 14 months, I became bullish too quickly. I am continuing to reassess my position and today must admit that further losses in the stock market will undeniably lead to the most dire consequences.

We are likely months away from any resolution to the current condition. Despite the world's governments and central banks best efforts, more bank failures are on the horizon. The next shoe to fall after that will be announcements of massive layoffs by some of the world's leading companies. Today's extended declines puts the entire state of affairs in a more tragic perception.