Joseph Schumpeter pointed out the importance of new technologies making existing products obsolete and irrelevant. His theories are much talked about. The PC displaced dumb terminals receiving instructions from a central computer. The cell phone is making land lines obsolete. The Internet is making ink on newsprint good for not much. And so on. This process of Schumpeterian "creative destruction" worked in tandem with the victory in the Cold War to enthuse investors to the Nth degree in the 1990s.
In this down-cycle in the economy and the markets, there is a clear problem. The destruction we see and read about involves no better product or economic/financial paradigm. All the financial firms that have been laid low this year fell because of old things such as mortgages and gambling/insurance products. There was no new better company that knocked them off their perch.
The homebuilders and retailers that have been flailing and failing did not fall from grace because of a surge in new types of homes (yurts, anyone?) or the massive success of Internet retailing. Autos have not been replaced by beaming people around town or individual jet packs a la the Jetsons. What happened was simple. Old production techniques produced more stuff and stores than people could afford. Now these are in excess and contraction follows. It's normal but it does not foretell a boom after the inventory and production adjustments are over.
What we are seeing is destruction without much creation. We are watching the agony of the ancien regime of a debt-based economy that needs propping up like the leaning Tower of Pisa. When the good doctor Bernanke prescribes a ZeBRa (Zero Bill Rate) for the ills of the economy, you know that it's the end of an important era.
The problem with creativity is that you can't hurry it. You can institutionalize progress, as with more durable and more functional artificial hips, but an economy-changing paradigm, a la the industry built in a hurry around the Internet, happens on its own pace.
Those seers who look to historical precedent to foretell the expected rebound of the stock market should be careful. This is a New Era. It is one of destruction without creation. What human activity does that sound like? It sounds like war. We ex-Hippie ex-Yuppies remember that war is bad. So for this economy and financial instruments such as common stocks of economically sensitive companies, this is a bad scene out of a bad trip. Caveat emptor.