THE BARRON

Thank goodness its a short week as most couldn't take many more like we have had the past couple of months.

Barron's with some great stuff this weekend starting with Mike Santoli's column:

"The virtually unwitnessed level of damage in a short period almost defies hyperbole. After Thursday's drop to an 11-year low on the S&P 500, the index was farther below its all-time high than at any time since 1949. The year 2008, had it ended then, would rank as the worst since 1872 at least. The S&P hadn't been as far below its 200-day average since 1932. Nearly 40% of S&P 500 stocks were below $4 billion in market capitalization, the minimum new stocks must meet to be added to the index. More than 40% of the stocks in the Russell 3000 were trading below $10."

"At the moment, the only close precedents for the past year are a pair of Great Depression-era bear phases. Andrew Burkly of Brown Brothers Harriman noted Friday that the current bear was 284 days old, and was down almost exactly as much as the 1929-'32 and '37-'38 bear markets were after 284 days.

And this was about the point where the paths of those earlier markets diverged, with the '29-'32 example sinking relentlessly to an 86% loss, and the '37-'38 version beginning a bounce that recouped 50% of its losses over six months before rolling over again. This history offers no immediate trading edge, but seems to suggest that being aggressively bearish from recent levels requires a belief that the economic implications of the present crisis at least rhyme with the Depression's."

Andrew Bary with some great stuff on "extreme stress":

"At Thursday's low, both the Dow and S&P had erased more than a decade's worth of gains. If the markets end the year where they finished Friday, both the 39% drop in the Dow and 45% slump in the S&P would mark their worst yearly decline since 1931. The current bear market, which has brought the DJIA down 43% from its October 2007 peak of 14,164, now rivals any decline in the 20th century, save for the loss of 83% from the peak in 1929 to the market depths in 1932 when the index bottomed at just 41.

A philosophical Warren Buffett told Fox Business News Friday morning that slumps worse than this one have happened before, referring to the 1929-1932 crash. Buffett noted that markets and the capitalist system overshoot and that this seems to be one those times. He said the markets are in a "negative feedback loop" as bad news becomes self-reinforcing.

It's tough to say when the markets will bottom, but unless the world is entering an economic depression, history suggests that stocks don't have much further to fall. Save for the 1929-1932 crash, no downturn in the 20th century exceeded 50%. One of the many ironies about this year's setback was that it was largely unanticipated because major averages began 2008 selling for a seemingly modest 16 to 17 times projected earnings, versus a peak of 25 in 2000. It turned out that profit estimates for this year were way too high.

Bear markets since 1929 usually have been followed by fairly quick recoveries. The average time to recoup a bear-market loss has been 22 months, excluding the 1929-1932 collapse, according to AllianceBernstein, which examined the S&P 500's total returns (stock-price gain or loss, plus dividends). Based on prices alone, the Dow didn't recover to its 1929 peak until the early 1950s.

Another encouraging sign is the shrinking value of U.S. stocks relative to nominal U.S. gross domestic product. At the market peak in 2000, stocks were valued at twice the size of the economy, but the relationship has adjusted this year to an estimated 59%, well below the long-term average of 79%. To get back to 79%, the S&P 500 would have to rise 36%, to 1,090. The relationship got as low as 40% in the late 1940s, when investors feared another depression, and in the inflationary 1970s.

Sanders says that many assets other than stocks, including commercial mortgages and junk bonds, appear to be priced for a depression. This is remarkable because as recently as 2007, these markets were priced for an economic boom. Not long ago, Barron's Roundtable member Marc Faber argued that there were "bubbles" in virtually all asset classes around the world.

Commercial-mortgage securities with triple-A credit ratings now yield 15% or more, while junk bonds yield an average of 20%. The junk market has collapsed this year, falling 32% after interest payments, by far the worst decline in its 25-year history, according to Merrill Lynch. So-called leveraged loans -- bank loans made to junk-grade companies -- yield 15% or more and trade for an average of 70 cents on the dollar.

Many pros argue that the best risk/return trade-offs lie not in stocks but in the credit markets, given the off-the-charts yields now available. With credit scarce and hedge funds under massive pressure to unwind leveraged trades in a wide variety of bonds, unusual market dislocations are cropping up, including an unprecedented relationship between risk-free Treasury bonds and interest-rate swaps, which are bank obligations. Thirty-year T-bonds almost always yield less than swaps because of their U.S. government guarantee, but they now yield a half-percentage- point more, an event that mathematical models would say is virtually impossible."

Finally- a video from Mr. Doom Gloom and Boom.