I skipped the 1920,s. We all know what happen then. 1955 21% decline 1960 20% decline 1965 (two bear markets) 22% and 36% declines 1975 48% decline 1980 27% decline 1985 34% decline 1990 20% decline 2000 49% decline. We have only come off 8.8% of so from the highs. I am still short the market, have been since shorting in to the fed rally. However, we are not close to a Bear Market yet. Question is, will the recession truly be mild, only to bring the market in to a very short lived BEAR that may touch a 20% decline or even less? Thus, not truly becoming a BEAR MARKET? Based on the evidence so far, looks so. The powers that be have pumped in massive capital, SWFs, have saved most of the top banks from going under and the the FEDS will continue to cut rates. With all this Band Aid coming it, I have to rethink my position of the Market going into a Deep long Bear, for now. The recession will hurt those who are extended beyond their means. Cost of living will rise and Oil will punch through 100. I think gold will bring a great buying opportunity soon. But as much as the "econ", the Financial Systems are fucked up, as much as I want to believe that we are going to have a serious bear market, evidence points other wise. I'm not saying the Market will rally. The Bull will not be here. I think we will have a choppy, market that will dry up by summer, which is around the corner. Just some observations.
Hey there- Considering US/European/Japanese population demographics, competitive currency devaluation, and equity valuations, I have suspected that we are going to see a protracted corrective action. We need to see that to get P/E ratios down to historic means/lows to begin a new rally. The big question in my mind is how that correction plays out. Whatever scenario you consider, you need to think of the price of the equity market relative to some sort of stable currency - EUR, GLD, or CHF perhaps. Relative to the appropriate benchmark (and I don't know which one is going to be the right one at this time - each has problems/issues), the US equity market will correct or trade flat & range bound for a protracted period. If we see a resumption of the equity bull run, you can be sure that there is US dollar devaluation to match. If the dollar strengthens, it makes the bear case much easier with enhanced disinflationary (or deflationary) effects. Either way you cut it, the current situation can't last much longer without any innovation to reinvigorate the market or wage inflation to support additional debt utilization (note I said utilization, not creation) by the consumer who is pretty unwilling to assume additional debt in this environment (unless they HAVE to, only delaying their inevitable default which is probably accepted (i.e. no intent of actually paying)). Globalization seems like it is about to smack the developed world in the face but good. We even see protectionist sentiment being raised here on ET. Bottom line is that if we (US) had anything to sell worth buying, it wouldn't really be an issue, would it? We have squandered our technical edge.
What you do not look at is how much you "really" lose in a bear market. The only way to measure that is how long, in inflation adjusted terms it takes to get back to breakeven on the money invested at the top of a market cycle. From the 1929 top it took investors 37 years to get to breakeven in real terms. After the 1969 top people did not get their money back for 23 years, and in fact investing in the T-bills from 1969 until 1996 would have provided a better inflation adjusted return than investing in equities would have.
Good post! Although the sample is very small to produce high statistical significance, note the five year dominant cycle. Whenever the five year cycle was skipped, the drop was severe in the order of 50%, as in 1975 and 2000. This time around, the cycle was not fully skipped and one (not significant of course) conclusion is that the drop will be less than 50% but more than 20%. Maybe around 70% (7 year cycle) of 50% from the top. That is about 35% which brings the Dow down to about 9,000 and to the Nov. 2001 low support. But the ride down will be full of nasty surprises for the shorts with plenty of short coverings and hard to make any money that way. Better try to catch the up swings. Ron
This time is different. Maybe more like the period you left out. It could get worse, much worse. One word: DEFLATION It could affect all asset classes, including equities. We are still in the early stages.
I understand your point and agree with your sentiment slightly but the numbers are wrong. If you were invested in the market i.e s&p 500 it didn't take nearly that long to get a "real" return. Why? THe S&P index does not include the effect of dividends. With these being reinvested, the return period required to get back to break even is much shorter. If you can access a bloomberg terminal, just look at the total return indices to see what I mean.
This is NOT a BEAR MARKET yet. There is no recession yet. Economy has cooled down and housing is in the shitters. There is no need to bring examples of past horrors. It does nothing good for the mind. Look forward to a bright future, help is on the way.