Here are a set of charts (compliments of dshort.com)
Below is a chart of the four major bear markets we have seen in the last 100 years. The only one that has been bigger than the current graph is that of the Great Depression.
Then next graph is one of the S&P 500 since the 50’s showing the level of fall out in each market, the grey band (width) gives an indication of the number of months each one lasted. Using the S&P as an indicator of general market health is the foundation of each of these graphs, while it doesn’t represent the entire market it does have the major companies in the index. Click here to see a chart where you can view each bear market in greater detail.
The current bear market is last, and it shows that we entered a bear market in July of 08′. Typically you won’t see a bear market continue for greater than about 6 months, granted, ‘recovery’ doesn’t mean you make your money back, it merely signals the end of the downward momentum, the market tends to react to bust cycles much quicker than boom cycles, for instance, you don’t get an S&P jump of 25% in a matter of days, but you can see that when the fall out comes.
The likes of Steve Leuthold (who is a very coservative and bearish investor – his fund made 74% last year on shortselling) is now saying -as per earlier video post- that he has seen the best values in equities that he has witnessed in his 45 years as an analyst, he is going long again. The wealth potential in equities in the market, the hard part will be extracting it intelligently to rise above the general curve.
Personally I favour companies involved in water engineering, finance (yeah yeah, banks are the devil but they still make money!), and pharmaceutical, dividend stocks are also becoming a more core element of my personal holding, with a small patter of pure speculation (oil exploration). On that note, oil isn’t going anywhere fast, we can’t fly over the Atlantic on batteries, nor will we, and for that reason there is likely some great value in Oil stocks.
The current market isn’t going to ‘bounce back’ and when you are in a downturn it is hard to see the good in any element of the market, in particular when bad news is the only news. However, record profits in banks like Standard Chartered and Goldman Sachs offering back their bailout money gives signs of hope. The other leading indicators such as the Baltic Dry Goods index are up as well. There are many academics who have said we will face the ‘worst history has seen’ but they are forgetting some simple rules.
Before I continue just remember what the situation is if we witness worst case scenario: even if its as bad then we are well over halfway there.
1. The Great Depression was very very different, people were relatively poor already, and there was no social welfare, I get my information from people who lived during that time, and who were born in tents, and I prefer to rely on that than charts (call me old fashioned if ya want!)
2. The natural tendency for markets is to expand.
3. Governments will inflate us out of this even to our detriment, the main thing that has changed in the market is confidence, other than that it is much the same world as before, the sun still goes up and then goes down again.
4. The people who have a reputation to protect on the back of their views will not change as quickly as the market does, in other words, if you are a commentator who is now in demand for having called the market crash, you are not too likely to turn around and say ‘I have changed my mind, things are looking up’ and yet these very commentators rule the airwaves and papers (for now at least).
To be ahead of the curve you need to think freely and for yourself, if I get it wrong I’ll pay for it, but at the same time, I might profit nicely from it, going to cash in Jan 08′ and staying that way until November 08′ was, in retrospect a good move, although I got back in too early. In both occasions I was told that I was making a mistake, in both occasions I have no regrets, nor will there be any regrets this time around about going back into the equities markets. One cannot doubt that we are in a secular bear market, but don’t forget that the bear market began (in the wider sense) in 2000, not 2008 when the recession/financial crisis began. Bear markets are like rain, necessary, required to maintain market life, but equally less common that when it doesn’t rain.