[MRM]

The market is responding rationally to lowered sales and earning expectations. It is going to get worse before it gets better. I can't tell you where the bottom is, because no one I know can see the bottom.

As I said last fall, things were bad until October, when it was like someone turned the faucet off. Sales are so far down for so many things that it's hard to use historical evaluation to judge today's prices. There is so much less economic activity now than there used to be, that it's hard to figure out where we really are.

Basically free and easy credit propped up the entire industrial market, just as it propped up consumer spending and the housing market. The GEs of the world used to be able to generate sales by subsidizing customers' purchases with cheap credit and sweatheart deals that encouraged customers to buy, even when they didn't really need to buy, just because GE gave such good terms and pricing. When the subsidies ended, the merry-go-round stopped and people started buying only what they needed and had money to pay for. Everyone has all the jet engines, bulldozers and manufacturing plants they need for now, and no one has the cash to buy more stuff.

So when people and industry stopped buying stuff because they didn't need it, and could no longer afford to buy unnecessary stuff with cheap credit, people and industry started cutting back on orders. That lead to cut backs, which lead to layoffs, which lead to increased unemployment, which reduced demand, which lead to more layoffs, etc. That's the spiral we're in now. There's wage deflation going on right now, at the same time as unemployment increases, all reflecting the worldwide reduction in demand for stuff.

When demand rebounds we'll see the cycle reverse. I just don't know how and when demand is going to rebound.