Dow Jones - on target for 11,650pts

The Dow Jones Index (DJIA) fell 306pts overnight to 12,159. I see the market falling further, and I dare say it will find support at the 12,000 psychological support, even though it will be temporarily broken in day trading. In the medium term I think the market will fall to 11,650 pts before we see stability. So events are unfolding as expected.
People might look at this chart and think the US equity market is way off-trend, so has a much greater fall to return to reasonable value. Since 1995 the US equity market has sustained a much higher rate of index growth. I think we have to appreciate that this higher growth rate was due to the capacity of companies to borrow, to use greater leverage, and to expand earnings, but this has been at the expense of unlisted and foreign companies. We have been through a period of global consolidation, and the USA has reinforced itself as the global head office for globalised business.
Having said that companies are using derivatives to manage their risk, and whilst that is fine for the operating companies, it leave the risk of a financial institution (counter-party) failure since they have the unlimited risk exposure. You might think that they have protective cover as well, and that its not the total exposure that counts, but the net exposure. Whilst this is true - the problem is that not all counter-parties have equal risk attached to them. The concern is that if there is excess concentration of risk then we can expect failures, and some institutions will have greater risk than others. The market will collapse without second guessing as the risks are not quantifiable, we can expect markets to react HARSHLY to any news of a financial institution failure. The bigger the institution, the bigger the collapse. We know that the size of the derivatives market has taken off over the last 10 years and that there is a high level of concentration in certain markets. In some markets the derivative market dwarfs the size of the physical market by 3x. This leaves the prospect of thousands of banks failing. The implication is massive debt liquidation, huge excesses of capacity, deflation. Thats not good for gold. Gold is only attractive if debt remains stable. Anyway people will sell gold to cover losses elsewhere, so reason for caution.
Rest assured that greedy deceitful CEOs are likely to retire before the problems occur. I guess they were cashing in their stock options last year. My guess is that they have already bought their yacht and spend Xma in the Carribean. Some of them might even have changed their citizenship to the Cuba. But thats not to say they are living there. They go where the current takes them. :)