NEW YORK (AP) -- The major stock market indexes have staggered to their lowest levels in more than a decade, pulled down by investors' rapidly waning confidence.
The Dow Jones industrial average and the Standard & Poor's 500 index are at the lowest point since 1997, succumbing to growing worries about a recession that has no end in sight.

Most financial stocks were pounded even as government agencies led by the Treasury Department have said they will launch a revamped bank rescue program. It includes the option of increasing government ownership in financial institutions without having to pour more taxpayer money into them.

The Dow Jones industrial average is down 250 at 7,114. The Standard & Poor's 500 index is down 26 at 743, while the Nasdaq composite index is down 53 at the 1,387.

Declining stocks outnumbered advancers by about 6 to 1 on the New York Stock Exchange. Volume came to a moderate 1.61 billion shares.

The fastest reduction in U.S. dividends since 1955 is depriving investors of the only thing that gave stocks an advantage over government bonds in the last century.

U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, according to the data.

A total of 288 companies cut or suspended payouts last quarter, the most since Standard & Poor’s records began 54 years ago, when Dwight D. Eisenhower was president. While the S&P 500 is trading at the lowest price relative to earnings since 1985 and all 10 Wall Street strategists tracked by Bloomberg forecast a rally this year, predictions based on dividends show shares are overvalued by as much as 46 percent.

“It’s a greater fool theory if we always buy stocks based on earnings and we never get a penny out of it, hoping for someone to buy that stock at a higher price,” said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $134 billion. “Dividends have been a cushion in bad times. If they go to zero it’s a disaster.”

Twenty-six companies in the S&P 500 saved more than $21 billion by cutting or suspending outlays this year, more than all the reductions from 2003 to 2007, when the index returned 83 percent. On a per-share basis, S&P 500 companies may trim payouts 13 percent this year, the biggest drop since 1942, S&P data show.....

The prices of real estate, stocks and many commodities continue to plummet this year.

But one figure appears unlikely to decline substantially anytime soon, to the great distress of consumers, companies and taxpayers alike: the amount of debt piled on top of the U.S. economy.

For now, most of the attention on debt stems from the prospect of a big rise in the federal debt burden. The Congressional Budget Office recently projected a 2009 deficit of $1.2 trillion, and a cumulative deficit over the next 10 years of $3.1 trillion.

But if rising government debt is worrisome, at least it comes off a relatively low base. U.S. public sector debt was 38% of gross domestic product in 2008, a number that compares favorably to most other developed countries.....

Here’s one of Wall Street’s best-kept secrets: If you were investing 30 years ago, your best choice, for the long run, would have been super-safe Treasury bonds. That’s where the money turned out to be. Investors erred in their religious belief that stocks always outperform bonds, over holding periods of 10 years or more.

If you rush to safe havens today, though, you may get it wrong again. Looking forward, the opportunities probably lie in risk -- bonds as well as stocks.

It’s easy to see that bonds have done better than stocks for the past 12 years. For that matter, so has your mattress. Stocks have surrendered all the gains they made since 1997, in what investors are calling their “lost decade.”

And that’s not the half of it, says Robert Arnott, founder of Research Affiliates LLC, an investment management firm based in Newport Beach, California. It’s more like a lost generation.....

Jason Woodward has barely broken even after dutifully pumping money into his 401(k) retirement account for about 10 years.

“I may be a little bit ahead, but not much,” said Woodward, 39, an employee of United Construction & Engineering Inc. in Torrington, Connecticut.

He’s better off than many 401(k) investors in their 30s who began saving a decade ago, according to data compiled by the Center for Retirement Research at Boston College. A median- income worker who put 9 percent of salary into an all-stock plan would have finished the decade ended March 31 with almost $10,000 less than he or she invested, a loss of 26 percent, the center found. With investments divided equally between stocks and bonds, the drop would have been 3.9 percent.

“There are days when it makes me extremely nervous,” said Woodward, whose wife, a state government worker, has her own retirement plan. “I am glad I am not retiring tomorrow.”

Investors in their 30s were too young to build their retirement accounts in the rising stock market of the 1980s and 1990s. Over those two decades, the Standard & Poor’s 500 Index climbed an average of 18 percent a year, including reinvested dividends, according to data compiled by Bloomberg. In the 2000s through March 31, the benchmark fell 4.7 percent annually.....

John Spooner remembers that during the depths of the 1970s bear market, a joke made the rounds.

Q: "What do you call a stockbroker?"

A: "Waiter!"

That joke, says the Smith Barney veteran, is making the rounds again. The only difference, he notes, is that today brokers are known as financial advisers.

The credit crisis and the depth of the stock-market decline, even after recent gains, have had many investors looking to the Great Depression for parallels. But for some, today's environment brings back memories of their early years on Wall Street during the 1970s when stock investors bailed out of the market and, for the most part, didn't come back for a decade.....

With General Motors in bankruptcy court, trading on the Pink Sheets and out of the Dow Jones Industrial Average, I couldn't help but think this week of one of my college roommates at Michigan.

He was the son of an autoworker, who hoped to follow his father and grandfather into that business, and his granddad had given him General Motors stock as a birth gift, promising his son they would "take care of him for life."

That made GM (GMGMQ 0.62, +0.01, +0.82%) the proverbial "widow-and-orphan stock," the kind of issue that was suitable to hold, presumably for life. Typically, it was a blue-chip stock, in a non-cyclical business -- so that it never got too hot or too cold regardless of the economic climate -- paying a big dividend where both the payout and the stock were considered "safe."

A century ago, railroads, utilities and basic-materials companies like steel manufacturers were widow-and-orphan issues. Then it was big manufacturers like the automakers, as well as newspaper companies. In the mid-1970s, banks would have started popping up on any list of stocks an investor might buy and hold forever.

Each of those industries has undergone massive changes, and through periods where the stocks that once seemed so safe had become the picture of danger.

As such, GM's fall should mark the official acknowledgement that widow-and-orphan stocks have gone the way of the dodo bird; their extinction forces even the most simplistic of investors to re-evaluate the way they look at securities.....

American common equity is increasing for the first time in five years, threatening to dilute corporate profits as companies sell a record amount of stock and cut dividends the most since 1938.

Wells Fargo & Co., ProLogis and more than 150 other companies raised $82.2 billion this quarter, beating the record pace at the height of the technology bubble in 2000, according to data compiled by Bloomberg. The combination of adding shares and restricting dividends will reduce annual equity returns as much as 4.1 percent, the data show.

“The math is inescapable,” said Alan Gayle, the Richmond, Virginia-based director of asset allocation at Ridgeworth Investments, which manages $60 billion. “You’ve got weak earnings, the share price goes down and then, ‘What? They want to raise equity?’ Clearly that isn’t a good thing.”

Companies are taking advantage of the biggest rally in equities since the 1930s to sell shares even after earnings fell seven consecutive quarters during the worst recession in half a century. Banks ordered to raise capital by the government account for 23 percent of underwritten sales, data compiled by Bloomberg show.

The flood is trimming earnings available to shareholders, a warning sign to Lyxor Asset Management SA, Research Affiliates LLC and James Investment Research that returns may not be high enough to justify buying stock.....

Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said it would be wrong to conclude that the economy and financial markets will return to “business as usual.”

“It is difficult to dismiss the view that we are in the midst of regime change,” El-Erian wrote in a commentary on Newport Beach, California-based Pimco’s Web site today. The evidence is “seeing governments in industrial countries become more involved in the modes of production, exchange and distribution,” he wrote.

The next few quarters will be “dominated by the aftershocks” of economic and financial change away from the financial services industry and toward greater government involvement, El-Erian wrote. The U.S. government will lead the way, placing the credibility of the Anglo-Saxon model “under threat,” he wrote. Firms dependent on large amounts of borrowing, such as hedge funds and private equity firms, will suffer, he wrote.

Investors should protect themselves by remaining flexible, seeking to diversify and preparing for unexpected risks, he wrote.....

Much of the financial news this month has revolved around the one-year anniversary of the Panic of 2008 -- the collapse of Lehman Brothers, the takeover of Merrill Lynch, the government's bailout of Wall Street.

But there's another anniversary for investors. It is 10 years this weekend since the publication of "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market," a popular seller that became the poster child of 1990s stock-market hubris.

Authors James K. Glassman and Kevin A. Hassett weren't quite the Dan Browns of their day, but in their book they nonetheless claimed to have discovered a virtual secret code buried within the stock market.....

It began as an age of economic wonders.

A time when a dot-com startup that never came close to a profit spent millions to make a singing sock puppet a star of the Super Bowl. A time when one of economists' big worries was what might happen if unemployment fell too low. Back when Enron was a fabulous investment and subprime loans exemplified U.S. financial innovation.

Most never saw the collapse of the First Bubble coming. Or the rise of the Second Bubble behind it that made its predecessor seem almost quaint. Or the Great Recession that seeded fears of — perish the thought — the Next Bubble.....

If 2008 was the year of sheer panic, 2010 is shaping up into one of stubborn, slow-burning angst.

There is a feeling that a lot remains unfixed in the economy, even though governments have spent heavily and central banks have flooded their economies with easy money. If the forces of deflation and deleveraging still aren't neutralized, what can be done to stop them? Indeed, might the only workable economic approach be to let these forces play themselves out?

The case for doing this can arguably be seen in the banking system, where credit is contracting, despite government help. Bank loans and leases have fallen a brutal 10.5% since the end of 2008, adjusted for loans brought onto banks' balance sheets because of an accounting-rule change. They are even down 3.25% since the end of 2009.

Take Bank of America, whose Tier 1 common ratio—a regulatory measure of capital to assets—rose to 7.6% at the end of the first quarter, from 4.5% a year earlier. Yet that thicker loss buffer hasn't yet spurred loan growth. In the year through March, BofA's total loans and leases totaled $977 billion, flat with the year-earlier amount.

One reason for the lending freeze may be that the Bush and Obama administrations completed only half of the bank restructuring required. After applying a huge Band-Aid to the system, in the form of big capital injections, they didn't push a wholesale restructuring of bank balance sheets that might have involved big sales of questionable assets, including toxic loans.

Such asset sales would in theory speed up asset-price adjustments across the economy and get prices to a level from which they can rise sustainably. Right now, banks and borrowers may feel asset prices haven't adjusted fully. This adjustment is being distorted in key parts of the economy, which may put a crimp on bank lending for years.

In Japan, a similar economic drag persisted because a much-needed restructuring of the corporate sector didn't occur. In the U.S. , it is the household sector and real estate—where banks have most of their loan exposures—that need more of an adjustment. For example, because of huge government support, it is almost impossible for anyone to tell if property prices are close to a natural bottom.

If assets such as houses were to find this firmer floor, banks may feel much better about taking them as collateral for new loans. Meanwhile, borrowers would be more likely to take out loans to buy lower-priced assets.

Of course, instigating this sort of restructuring, and generating further asset-price weakness, would mean more losses on already-made loans. But it may turn out that taking those losses is necessary to avoid a Japanese-style lost decade for economic growth.

The US used to point the finger at Japan's "Lost Decade" saying "It won't happen here." But it did. Median wages are nearly 5% lower in real terms than in 2000, the poverty rate is at a 15 year high, and the S&P 500 is about 20% lower than it was a decade ago.

Pleased consider the Wall Street Journal article Lost Decade for Family Income

The downturn that some have dubbed the "Great Recession" has trimmed the typical household's income significantly, new Census data show, following years of stagnant wage growth that made the past decade the worst for American families in at least half a century.

The bureau's annual snapshot of American living standards also found that the fraction of Americans living in poverty rose sharply to 14.3% from 13.2% in 2008—the highest since 1994. Some 43.6 million Americans were living below the official poverty threshold, but the measure doesn't fully capture the panoply of government antipoverty measures.

The inflation-adjusted income of the median household—smack in the middle of the populace—fell 4.8% between 2000 and 2009, even worse than the 1970s, when median income rose 1.9% despite high unemployment and inflation. Between 2007 and 2009, incomes fell 4.2%.

Lost Decade Lowlights

Americans living in poverty rose sharply to 14.3% from 13.2% in 2008
Poverty level is the highest since 1994

43.6 million Americans are living below the official poverty threshold
Inflation-adjusted income of the median household fell 4.8% between 2000 and 2009

The number of 25-to-34-year-olds living with their parents rose 8.4% to 5.5 million in 2010 from 2008

Child poverty rose to 23.8% for kids under six in 2009, compared to 21.3% a year earlier....

Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said the planned exodus of hedge-fund icon Stanley Druckenmiller helps mark the end of the “old normal” for investing.

The departure of Druckenmiller, who has run Duquesne Capital Management LLC since 1980, and that the Chicago-based hedge-fund Citadel LLC is considering cutting fees on some funds as it attempts to attract clients, “are reflective of a broader trend in capital markets,” Gross wrote in a monthly investment outlook on Pimco’s website today. “The new normal has a new set of rules. Leverage and deregulation are fading from the horizon and their polar opposites are in the ascendant,” Gross added.

Druckenmiller told investors last month he’d been worn down by the stress of trying to maintain one of the best trading records in the industry while managing an “enormous amount of capital.” Citadel LLC, the $11.1 billion firm founded by Ken Griffin, is said to be considering cutting fees on the Kensington and Wellington hedge funds, according to two people with knowledge of the firm’s plans.

The “new normal” will be an environment where “future investment returns will be far lower than historical averages,” Gross added. “If bond investors believe that the resplendent and abundant capital gains of the past 25 years will be duplicated from yield levels of 2 to 3 percent -- well, they just haven’t been to Japan, have they?”