Take a step back and think about what the world will look like on the last trading day of August 2002.
Will prices of the best-known companies and stock index futures have fallen to zero? Will equity markets have disappeared? Will the futures markets that depend on the cash equity indices evaporate in tandem?
No. But that's what the current pace of decline -- the panic -- in the September S&P futures (SPU2:CME) implies. And that pace of descent is unsustainable.
Here's what I mean. The September S&Ps have tanked 28 points on average in each of the past three sessions. Measured from Monday's closing price of 819.80, if the S&Ps were to continue tanking at that pace, they would trade to zero in just 29 sessions.
By Sept. 2, the first trading day of the month, the S&Ps would be trading at zero. The capital markets as we know them, and all of the value tied up in them, would be gone.
Of course, markets don't go straight in one direction forever. But the pace of the recent decline is providing an example of unsustainable downside momentum. It is extremely unlikely that the financial world as we know it will have vanished by trading to zero by the beginning of September.
