Just in case you thought that the losses in the US Equity markets are excessive…think again.

The major Indexes lost some 25% of their value over the past month.   In particular , the Dow Jones dropped from the 11000 zone to under 9000 this past month.  The declines seem dramatic, however if you look at the long term picture, what you’re seeing is that these indexes have returned to more, real levels. 

Just take a look at a long term chart of the Dow…(e.g. 15 to 20 years back) and you can see the clear picture of the bubble economy that began back in about 1996.  The economic scenario, which was far from Gold-Locks, relied on assets bubbles that gave consumers additional income from excessive returns in Stocks and Real Estate.  This increased income along with a push to increase debt and leverage to consume at an unsustainable pace that increased revenues for companies has now been mitigated, bringing the US economy back to a more normal state. 

Just draw a long term trend line and normal levels for the Dow come in from about 7000 to 9000.   The period from 1996 to 2008?  Just an unsustainable smoke and mirrors scenario, where products and services were bought by consumers off of paper valuations of Stock portfolios, real estate valuations and credit cards.

So is this sell-off over done?  What was over done was the nonsense that transpired over the past decade.  Sooner or later…the markets cleanout unsustainable imbalances.

Just click on the link and see the hyperbolic moves in the Dow from 1996 to 2007.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=djia&sid=0&o_symb=djia&freq=2&time=20