photo by Bob Jagendorf

Articles like the one from the Deseret News below are everywhere in the media today. Dave Young, President of Paragon, commented about the situation.

Yesterday was an ugly day in the market. It was the worst day in seven years for the Dow Jones Industrial Average. The bankruptcy of Lehman Brothers combined with the sale of Merrill Lynch combined to put the market in a very bad mood. Waiting in the wings with more potential negative dramas are AIG and Washington Mutual.

Based on historical numbers, this bear market is probably in the late stages.

Since last October the Dow Jones Industrial Average has dropped by -23%. It has taken a painfully long 342 days to grind its way down this far. We hit market lows back in July and now we are back just below those lows.

Historical median numbers for the 33 bear markets since 1900 are a -26.9% loss over 363 days. The last five bear market bottoms have occurred between August 31st and October 19th.

Our quantitative models are mixed right now.

While they aren’t flashing that we are at a bottom yet, they do indicate that we are close. Our advice at this point is that it is too late to sell, but also too early to buy. In other words, in our opinion it doesn’t make a lot of sense to sell at this stage of the market downturn.

Likewise, we may not have hit the absolute bottom yet, so we wouldn’t recommend taking new positions until a solid bottom is put in place and our indicators start recommending buying.

Our advice at this point is to simply hold your current positions.

No one knows what a reshaped Wall Street landscape will look like, but experience tells us that those who remain calm and make rational decisions with an eye on the long term are those who will most likely weather the current uncertainty.

If you are one of our clients, then your investment plan was put together with the long-term in mind. If you believe your circumstances have changed, please call our office and we will arrange a review and reassessment. In the meantime, do not let short-term market difficulties undermine your long-term rational planning.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this article has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this article constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Financial meltdown — Dow’s plunge is worst since 9/11

NEW YORK — Mighty investment banks were laid low. Stocks put in their worst performance in seven years. About $700 billion was washed away on Wall Street.

The crisis set in motion more than a year ago by a series of bad mortgage bets produced its most devastating day yet Monday, leaving investors to wonder whether anywhere was safe for their money.

Capping a tumultuous 24 hours that redrew the American financial system, Lehman Brothers filed the largest bankruptcy in American history, and a second storied bank, Merrill Lynch, fled into the arms of Bank of America.

The Dow Jones industrial average lost more than 500 points, more than 4 percent, its steepest point drop since the day the stock market reopened after the Sept. 11, 2001, attacks.

About $700 billion evaporated from retirement plans, government pension funds and other investment portfolios.

It was by far the most stomach-churning single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans that have crippled the balance sheets of one bank after another and landed mortgage giants Fannie Mae and Freddie Mac under the control of the federal government.

“We are in the middle of a deep, dark recession, and it won’t end soon. Here it is, and it is pretty nasty,” said Barry Ritholtz, who writes the popular financial blog The Big Picture and is CEO of research firm FusionIQ.

And the fallout was far from over. American International Group, the world’s largest insurer, was fighting for its very survival: New York Gov. David Paterson moved to allow the company to tap one of its subsidiaries for an emergency loan.

“AIG still remains financially sound,” Paterson said, even as the company’s stock tumbled almost 60 percent. Almost $20 billion was wiped off AIG’s balance sheet on Monday.

In Washington, Treasury Secretary Henry Paulson, who refused to toss a financial lifeline to Lehman, was unapologetic as the Bush administration signaled strongly that Wall Street shouldn’t expect more rescues from Washington.

The American people should remain confident in the “soundness and resilience in the American financial system,” Paulson told reporters at the White House.

Six months ago, Paulson moved to prevent the collapse of Bear Stearns, brokering a deal for JP Morgan Chase & Co. to buy the firm at a fire-sale price with Federal Reserve backing. Earlier this month, he stepped in to help the government seize Fannie and Freddie in hopes of reversing the housing and credit crises.

But Monday, Paulson said he “never once” considered it appropriate to put taxpayer money at risk to resolve the problems at Lehman Brothers, which was saddled with $60 billion worth of soured real estate holdings.

President Bush also tried to calm jitters. “Adjustments in the financial markets can be painful, both for people concerned about their investments and for the employees of the affected firms,” the president said. “But in the long run I am confident that our capital markets are flexible and resilient and can deal with these adjustments.”

Paulson, making a rare appearance before reporters in the White House briefing room, also sounded notes of optimism.

“What we are going through in the short term doesn’t make anything easier,” he said. “But in the longer term, it’s going to make things better, because we’ve got excesses we need to work through.”

Paulson said he is taking Monday’s stock tumble as a good sign — because the fall was less-severe than expected and occurred in a relatively orderly way.

The Dow industrials dropped 504.48 points to close at 10,917.51, the first time since July they have finished under 11,000. It was the sixth-largest point drop ever and the worst since Sept. 17, 2001.

In percentage terms, the fall for the Dow on Monday was its worst since the summer of 2002. The index has shed nearly a quarter of its value since its record high last October.

Broader stock indicators also fell. The Standard & Poor’s 500 index lost more than 4 1/2 percent, and the Nasdaq composite index lost more than 3 1/2 percent.

Financial stocks fell as investors worried about the strength of banks’ balance sheets. Washington Mutual Inc. 27 percent to $2 a share, while Wachovia Corp. fell 25 percent to $10.71, its biggest decline since July 1980.

While Lehman Brothers was filing for Chapter 11 and AIG was scurrying to find financing to stay afloat, Merrill Lynch was avoiding a similar fate with a $50 billion transaction to become part of Bank of…

Visit www.desnews.com to read more…

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Contributing: Jeannine Aversa, Ieva M. Augstums, Rachel Beck, Tim Paradis, Ellen Simon, Vinnee Tong, Stephen Bernard, Emma Vandore and David Pitt, Associated Press; Joseph Fineman, Bloomberg News