From 30 years of S&P 500 historicals, the most similar time frame for 2006-09-11 to 2007-09-07 is 1978-11-24 to 1979-11-19 (ANALYSIS). The dynamics involving the dollar, oil, housing, Iran, and gold are strikingly similar to today. Market psychology cast a remarkable pattern on pricing, and by computationally finding similar price charts, similar sentiment from bygone time frames are discovered. I refer to this process as sentiment fingerprinting. Without much fluff, lets see what happened to the dollar in 1978.

The US dollar dived to record low against the Yen and European currencies, the United States monetary authorities proceeded to deter the dollar's high dive and abate inflation, according to the Wallsteet Journal the Carter administration announced the "Treasury would use gold sales and foreign borrowing and draw on its reserves with the International Monetary Fund to defend the dollar. At the same time the Federal Reserve raised its discount rate a point." From the excessive growth of the money supply, due to the credit demands and inflation, the Fed boosted interest rates to curb borrowing. What happened next? Predictably, a dash to gold's safe haven.

Gold price topped at USD $200 an ounce for the fist time. This didn't last long, for the price of gold then plunged in reaction to the treasury announcement that it will more than double the amount of gold it sells each month to shore up the dollar. Oil leveraged the instability, unlike gold.

OPEC raised oil prices 18%. From the Federal Reserve Bank of Dallas, "The primary oil weapon became an excise tax—a price increase per barrel levied by a cartel experimenting with a new and aggressive pricing policy throughout the 1970s. Each time a new disruption occurred in world oil markets, from pipeline breaks to the Iranian revolution, OPEC used the event to ratchet up the price and then maintain it. OPEC’s pricing became more aggressive after it implemented a formal quota system among members in 1978 to support prices. OPEC’s Long-Term Price Policy Committee saw the ultimate target as just under the price of synthetic oil—the only possible substitute, as they saw it—or near $60 per barrel." What next? Peak housing.

Housing starts peaked in 1978, and continued to plunge thereafter till jan of 1982. The Commerce Department said home buyers continued ignoring high interest rates as housing construction kept its exceptionally strong pace in July. From Time's article, "Daniel Brill, chief economist at the Treasury Department, was startled when his son phoned to say that he had lined up financing for his first house, which is in the Boston area. The cost: 9.75% mortgage interest—plus 2.5 points (a one-time finance charge). Admits Brill: I gulped. I remember bitching when I had to give up my 4% G.I. mortgage."

There were tremendous losses, the S&P dropped 15%, but be reminded if you get caught in it, only a year later -- incredible growth. "The only way for long-term investors to really suffer during these times is to turn a temporary loss into a permanent one by reacting emotionally and selling."