Hope springs eternal...and then gets whacked.

Big jump in the Dow yesterday – up 889 points. Does this mark the end of the downturn...the bottom of the bear market...the worst it’s gonna get?

Everyone hopes so. But don’t count on it. There is almost always a large rally before the final bottom is in. Hope...followed by disappointment. Often several times. Over a long period of time. And by the time the final bottom comes, investors are so broke, so depressed, so fed up that they no longer care.

The Japanese market hit a high over 30,000 on the Nikkei Dow in January of 1990. Stocks plunged. Investors have been waiting for a recovery ever since. This year, for example, Japanese stocks have lost 50% of their value...bringing the index down to the 8,000 range, the lowest it’s been since 1982!

Compared to long-term investors in General Motors, the Japanese are lucky. GM is now trading in the $5 range – a price it last saw when your editor was born 60 years ago. But even that could get worse.

“End of the road for US automakers?” asks a headline in the Los Angeles Times .

Meanwhile, Detroit seems to be becoming a ghost town...or a hellhole like Port-au-Prince, Haiti – with ice. Mansions once owned by auto industry tycoons now selling for $100,000 or less. But just wait until the auto industry shuts down completely!

Where and when will the bear market in the United States end? No one knows. But it could end on some sad day 20 years in the future. Between now and then however, typically, a major bear market gives you a second chance to get out. After the October crash in ‘29, stocks rallied until April...then they started to slide again and did not fully recover until the 1950s – more than 20 years later.

At today’s levels, U.S. stocks are not terribly overpriced. If you look at the stock market over the last 100 years, you find stocks usually trading in a range similar to where most are now. They are, say the analysts, at “fair value” with the Dow anywhere between 6,000 and 9,000. But earnings are falling. And stock prices lead earnings. In fact, they are thought to “look ahead” and track future earnings. If the First World Depression – of FWD, for the history books – unfurls as we expect, stocks could be “fair value” at much lower prices.

The other thing that is likely to happen is that stock values could become “unfair.” It was unfair to charge investors $90 a share for Micron...or $120 a share for Yahoo...or $70 a share for KB Homes. Soon, it may be similarly “unfair” to pay investors only $5 for their shares in KB Homes, or Yahoo...or only 50 cents for a share in General Motors.

Typically, everybody overdoes it. Coming and going. On the upside, they get carried away and pay too much. On the downside, they panic...then lose interest...and won’t pay enough. The “overshoot” usually goes to about half again as much – at least on the downside. That is, stocks fall to what might be considered “fair value” by most measures...and then they fall another 50%. So, if “fair value” is 8,000 on the Dow, you should expect the Dow to hit 4,000 before the bottom is in.

But here at The Daily Reckoning , we are always walk on the sunny side of the street. Our optimistic guess is that that the Dow will fall to 5,000. Perhaps sooner, rather than later.

Mr. Market is a strange fellow, isn’t he? When he is pushing up prices, everyone loves him. When he is knocking them down, the mob gets a rope and comes after him. Even the short sellers turn against him, because he inevitably disappoints them too – causing stocks to rally strongly even in the midst of a major bear market.

Believe it or not, now the capitalists are arguing that they should be allowed to ignore Mr. Market altogether. They want to use “fair value” accounting on their financial statements. They don’t like Mr. Market’s offer. So, they hope investors will accept their idea of what their stocks and assets “should” be worth...rather than what they are really worth. “Mark to market” asset valuations are “unfair,” they say.

We don’t recall them complaining when “mark to market” put their asset prices far higher than they were really worth. Besides, whoever said Mr. Market played fair?

*** “Downturn Clobbers Public Pension Funds,” says the Washington Post . For example, the California pension system, Calpers, has lost $67 billion over the last 12 months. Government-owned pension systems tend to put about 60% of their funds in the stock market – so they’ve taken big hits, along with everyone else. And most public pension systems were underfinanced even before the stock market turned down.

Retirement financing is going to be a big issue for many, many people – even those who thought they had it in the bag.

Altogether, trillions of dollars’ worth of retirement funds have been lost already. Trillions more are still at risk. After such a long period of growth and credit expansion, baby boomers came to believe that their stocks and their houses were as a good as “money in the bank.” And as recently as 2007, even counting the value of their stock portfolios and their houses, experts found that a high percentage of baby boomers were woefully ill-prepared for retirement. And now their stocks are worth, most likely, about 40% less than they were in 2007...and their houses about 20% less.

And the boomers already have it hard enough without their retirement funds being at risk. The Social Security crisis, as outlined in the companion book to I.O.U.S.A. , is projected to only get worse as the years go on. Here’s an excerpt from the book:

“On October 15, 2007, Reuters reported, ‘The latest report by the program’s trustees said by 2017, Social Security will begin to pay more in benefits than it receives in taxes. By 2041, the trust fund is projected to be exhausted.’

“The Federal balance sheet is already unsustainable. And the baby boomers have only begun to retire this year. ‘The baby boomers are not a projection,’ says Senator Conrad. ‘They were born, they’re out there, they’re going to be eligible for social security and Medicare ...and yet we can’t pay our bills now.’

“Judd Gregg, the Republican leader in the Senate Budget Committee, puts the looming problems of these unfunded liabilities this way: ‘The only issue more severe than this is the idea that an Islamic fundamentalist would get his or her hands on a nuclear weapon and use it against us. Beyond that there’s nothing more severe than this.’

“Gregg goes on to state that the retirement of the baby boomers represents ‘the potential fiscal meltdown of this nation ...and absolutely guarantees, if it’s not addressed, that our children will have less of a quality of life then we’ve had ...that they will have a government they can’t afford...and that we will be demanding so much of them in taxes that they will not have the money to send their kids to college or buy a home or just live good quality of life.’

“These grave warnings from leaders in both political parties have largely fallen on deaf ears, but we believe Americans can no longer hide from them. Simple economics dictate that you may be able to spend more than you take in for a long time, but you cannot do it forever.”

*** Making the situation worse – possibly much worse – for the baby boomers is the increase in unemployment. Whirlpool just announced 5,000 job cuts. We typed, “job cuts, October 2008” into Google. We got 3,350,000 hits.

The International Herald Tribune tells us that wealthy Americans are cutting back on eating out...and household help. Our two daughters – both of whom work as waitresses, while going to school or trying to become movie stars – report that getting a job in a bar or restaurant is not as easy as it used to be.

“You used to be able to walk into almost any pub in London and get a job,” said one. “They were happy to take anyone who could speak English. But now, you put your name on a list...and they never call you.”

If there was one thing the baby boomers were sure of, it was that if they didn’t get their retirement financing together in time, they could always just keep working for a few more years. But already, the percentage of ‘seniors’ in the workforce – 16.4% – is higher than ever. And what if the jobs disappear?

*** France’s Sarkozy is feeling pretty smug. In fact, the French are feeling pretty smug...almost a feeling of schadenfreud, if they had a word for it. They knew the war in Iraq was a waste of time and money, so they stayed out of it; they were right about that. And they knew, too, that American-style hyper-capitalism wouldn’t work. They think they were right about that too.

We like almost everyone we meet...once we get to know him. We have lived among the French for more than 10 years. We have learned their language and gotten to know their curious customs.

For example, while Americans pretend to work hard, the French pretend not to work. For example, the parking lots in our offices in the United States are nearly empty at 5:30PM. Here in Paris, when we left the office at 7PM last night, most of the staff were still at their desks.

French teenagers brag to each other about how little schoolwork they do...then, they sneak off to study until the wee hours of morning.

Likewise, while Americans pretend to have a lot of money, the French pretend not to. There are few flashy cars on the streets of Paris. And when you see a top-of-the-line Mercedes, it is usually owned by a foreigner. Nobody ever made any money building McMansions for the French either. Instead, houses tend to go up slowly...are solidly constructed...and much less gaudy than their U.S. equivalents.

The French also pretend not to care about money, but they are the biggest savers in Europe. France’s public debt – at 66% of GDP – is lower than the United States’ – at 72% of GDP (and soon to be at 100%). As to private debt, the French are way ahead...they have private debt of 140% of GDP...about where the U.S. was at before it went on its Fed-fueled spending spree 2002-2007. Now, private debt in the United States is 280% of GDP, twice the frogs’ level.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.