Updated: May 3, 2013 12:14PM
The markets have been hit by the financial equivalent of the neutron bomb. It has left the companies standing but destroyed the value of the shares that represent their businesses.
Either the financial world as we know it is coming to an end -- or it's not! We'll only know in hindsight. But unless this is the proverbial "black swan" -- the unimaginable and unique event that annihilates capitalism -- this panic will subside.
It's impossible to predict how low markets will go. But since stocks represent real assets, at some point cooler heads will decide there is value at these lower prices. When that happens, we'll look back on this as the sale of the millennium.
One good sign: People are starting to ask if markets can go to zero. Well, for sure, that would be a bottom! But that desperation is also a pretty good sign that even the most sophisticated players are ready to, or already have, thrown in the towel.
Instead of playing guessing games, let's see what history has to say about these losses. The S&P 500 is now down 655 points, or 41.9 percent, from its peak reached Oct. 9, 2007. That's not the worst bear market we've ever seen.
Market historian Jim Stack at InvestechResearch.com says the worst percentage loss came in the bear market of 1929, where the loss from peak to bottom was 86.2 percent!
The runner-up for bear market losses came in 1937-38. The market rebounded in the early '30s, but fell more than 50 percent in 1937-38.
And in the bear market of 1973-74, the S&P 500 lost 48 percent, a figure matched in the tech wreck of 2000.
So the current decline, coming from lofty numbers, doesn't yet match the worst the market has seen, and survived! As Stack notes: "The final market bottom is defined as the point of maximum pessimism on Wall Street!"
This time is different?
Investors are always saying it's "different this time" to justify markets that go to excessive valuations. The latest example was the belief that technology changed everything.
Now many investors fear that it's different on the downside, that this time the market collapse will never find a bottom. That's as unlikely as the belief that it will always go up.
What is different this time is that we've turned millions of ordinary Americans into pension fund managers -- without an investment education, without risk management tools, and without self-discipline that comes from experience. It's not easy to see money melt away, and with it your retirement plans and dreams. And thus, the panic is more widespread and personally targeted.
But one thing is sure: Panic selling is what creates market bottoms. And those who sell out at the bottom lose their chance of regaining value in the future, if and when their stocks rebound.
There are no guarantees in life, or in the stock market. There is only historical perspective. History shows no one ever got rich betting against America. And that's The Savage Truth.
Terry Savage is a registered investment adviser. Distributed by Creators Syndicate. Copyright Terry Savage Productions Ltd. Visit www.terry savage.com and suntimes.com.