Monday Feb 22 2010
The one complaint about my classes is that, okay so there is perhaps more than one complaint….., but
the one complaint is that I expect too much. Here is a quick story. In high school I took two years of Latin Classes. At least I sat through two years. We only got to chapter 12 each semester in the books. But there were about 22 chapters in the books. Fast foward to my arrival at UT Austin. As a result of my triumphs in classic studies, two years of diligent study, I was placed in advanced Latin! I discovered that my knowledge was exhausted after a mere, you guessed it, twelve chapters in that book, and we were covering three chapters a day. The rest of the class, mostly students from Dallas and Houston, had gone as far as translating Julius Caesar. I had, on the other hand, seen the movie Cleopatra……I made my A but only after countless hours of scrambling to catch up.
I believe that my charge is to make sure you do not find yourself in a similar situation. Now consiider this prediction from Steve Kaplan at True Contrarian, this might shape your expectations upon graduation in a couple of semesters. Quite simply he is suggesting we will see another drop possibly below the March 2009 S & P level of 666, trust me that will have consequences on hiring….
The structural situation of the worldwide economy is quite similar to 1930. By 1930, most worldwide stock markets had regained modestly more than 50% of their 1929 losses. Similarly, the S&P 500 index by January 19, 2010 had regained modestly more than 50% of its total pullback from October 11, 2007 (1576.09) through March 6, 2009 (666.79). I don't expect a collapse of 85% over the next two years, as we experienced from the 1930 high to the 1932 low, but certainly 60% or 65% is a reasonable projection for the total pullback from the recent (or upcoming spring) top to the ultimate bottom. The more that stocks end up declining, the more important it will be to wait patiently until the bear market is nearly over before purchasing your favorite securities.
Professor Elam 
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