CHESSNOID

Some more bad banking news came out today, but nothing out of the regular norm. Bailouts, poor earnings, bigger losses, and the usual stuff you would expect in this economy. I thought it was priced into the numbers already. Apparently not.

SAN FRANCISCO (MarketWatch) –

The Dow Jones Industrial Average’s steep sell-off Tuesday was the worse performance for a U.S. inauguration in the Dow industrials’ history, which dates back to 1896, said the publisher of the blue-chip index. The Dow fell 332 points, or 4%, to close under the key 8,000 level at 7,949 points, its lowest close since Nov. 20. Steep drops in financial shares sank the broader market in a reminder of the challenges facing the nation’s 44th president, Barack Obama.

For the year the Dow is down 827.30, or 9.43 percent.  The S&P is down 98.03, or 10.85 percent.  The Nasdaq is down 136.17, or 8.63 percent.

Now if this follows the pattern after FDR took office during the Great Depression, we may see a 15% market rally.

The Dow Jones Industrial Average fell 14 percent between Barack Obama’s election and Inauguration Day, the biggest decline ever. The second-biggest drop gave way to a 75 percent rally in 1933.

The CHART OF THE DAY compares the Dow’s retreat since Nov. 4 with the 13 percent slide between Franklin D. Roosevelt’s election and his inauguration on March 4, 1933. The red line goes on to show the Dow’s surge during FDR’s first 100 days. No other new president since the beginning of the last century produced gains or losses of 10 percent or more in the analogous periods.

“Obama is realizing the historic parallels,” said Richard Sylla, an economic and financial historian at New York University’s Leonard N. Stern School of Business in New York. “The situation isn’t quite as serious as the 1930s but it’s serious enough that I expect Obama to take a page from FDR’s book to restore some of the confidence that’s been shattered.”

Obama becomes president today during the most severe economic crisis since Roosevelt was sworn in 76 years ago. Like his fellow Democrat, Obama plans to create jobs and boost the economy by investing in roads, bridges and public buildings and increasing oversight of the securities industry.

Stock exchanges closed for more than a week when FDR declared a bank holiday and enacted reform days after becoming president. The Dow jumped 15 percent on the day markets re- opened.

Personally, I disagree with historian Sylla and believe this economic crisis is just as bad as the Great Depression and has the possibility of becoming worse.  Our banking system is under pressure from trillions of dollars in losses and our government continues wasteful spending.