We expect home prices to fall by at least 70 percent before the 'subprime mess' has run its course in perhaps 7-8 years, so Wall Street's recent show of exuberance would appear to be premature. Case-Shiller estimates that home values have fallen 11 percent in the last 12 months, but that would imply prices have only barely begun their slide. For the Dow Industrials, the bottom may lie even further below, since, like Bob Prechter, we believe the blue chip average eventually will trade for under 1000. That would represent an approximately 90% fall from current levels ' not quite as bad as the most extreme cases witnessed during the dot-com crash, but with much broader consequences nonetheless, since ownership of the 30 Dow stocks is far more widely distributed than tech shares were. Concerning payroll numbers, we think the loss of a mere 80,000 jobs in March will come to be regarded with nostalgia at some point and that the economy will shed another two million jobs before the end of next year. The 80,000 figure was of course significantly worse than the 50,000 that had been predicted, but we were puzzled that the predicted number should have been viewed with such dread. If our much darker forecast is correct, monthly job losses should soon start ratcheting up into the 120,000-140,000 range. Considering the above, last week's rally on Wall Street might be viewed as a flight from reality. The celebratory mood will surely pass, and probably soon, but until that happens, we should expect the mainstream press to continue force-feeding the theme that the Fed's heroic and unprecedented measures have saved the day. The catalyst for this latest outbreak of good feelings was of course the Bear Stearns deal. From a public relations standpoint, it has succeeded thus
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