Posted on 07/05/2008 5:50:11 AM PDT by shrinkermd
IT'S OFFICIAL: THE BEAR HAS ARRIVED. The Dow Jones Industrial Average last week qualified for the widely accepted definition of a bear market of a 20% drop from the highs. The good news is that once the decline reaches that arbitrary 20% mark, based on history, the market has suffered most of its losses. The bad news is that the decline typically drags on for some time, and time may be the worst enemy. Investors may initially try to grab erstwhile highfliers that have crashed and burned but rarely regain their former status. And as the decline wears down investors' psyches, they tend to bail out at the market's nadir, when things look bleakest -- and when the greatest opportunities present themselves.
The post-1940 average bear market (as defined by the Standard & Poor's 500 index) produced a decline of 30.4% from a peak that took 386 days to reach its trough. By the time the market was down the requisite 20%, the average bear market was 74% completed. Based on those averages, the bear market would have another 118 days to run and would face losses of another 14% from current levels.
Rarely does the market get a short, sharp shock, as in 1987, when the bear market lasted just 101 days -- with most of the total damage of 22.51% done on Black Monday, Oct. 19. The longest march downward was the 1973-74 decline, which took 630 days and sliced 48.2% off the S&P.
BUT BESPOKE DEFINES two separate bear markets following the bursting of the technology bubble -- an initial 36.77% drop from March 2000 to September 2001, punctuated by a brief, post-9/11 recovery until the next decline of January-July 2002 of 31.97%.
(Excerpt) Read more at online.barrons.com ...
If this “Bear Market” runs another 118 days from today, the means it turns around on Election Day. What a coincidence.
“If this “Bear Market” runs another 118 days from today, the means it turns around on Election Day. What a coincidence.”
It will be too little too late for McCain by then. What I find surprising is that the market has not fallen farther given the adverse effect of energy prices on the bottom line.
25 Reasons Why The Worst Isn’t Behind Us
The boys over at MinyanVille put together a rather good list of all the reasons why the market still has more problems to solve.
1. Stocks are firmly in a downtrend. The S&P 500 is down roughly 20% from the market peak on October 11, 2007.
2. Corporate spreads are rapidly widening. Investment grade bonds yielded as little as 0.30% more than U.S. Treasuries did back in 2003 - but are now as much as 2.30% above U.S. Treasury rates.
3. Everyone I know is saying “All is well, buy America.” The crowd is usually wrong at extremes.
4. European equities are taking out the lows of the year. European large cap stocks are now down more than 28% after peaking on June 20, 2007.
5. The capital-raising window is closed. Firms are losing their ability to raise new capital to sustain their operations. There have been several new corporate deals in the past couple of weeks that have failed to raise the desired amount of money.
6. Earnings estimates are too high. Forward projected earnings are wildly inflated. This error in forward earnings estimates creates a false sense of security in stock prices.
7. While much of the move in financials is done, it should spread to other industries. Financial companies provided credit to consumers in all forms (credit cards, auto loans, boat loans, RV loans, home equity loans, mortgages, etc.). Credit is the consumer’s life raft: without it, he founders.
8. If the “best of breed” are missing their numbers, what happens to the real dogs? Well managed companies (like United Parcel Service (UPS), Federal Express (FDX), Nike (NKE), Best Buy (BBY) and Fortune Brands (FO), for example) should do well in any environment. If they’re not able to meet even their own projections, what can we expect for less well managed companies?
9. We are entering the worst part of the Presidential cycle. In an election year, extra fiscal and monetary stimulus is usually applied by the incumbent party to “juice” the economy and help voters feel good about the current leaders. After the election, this extra stimulus is removed and the real work of making change usually begins.
10. We are at war. On multiple fronts.
11. The consumer is tapped out. Mortgages cannot be refinanced, credit card balances are maxed, retirement savings are now being exhausted and existing portfolio values are declining.
12. Corporate buybacks are gone. Buybacks have dropped to a bare $1 billion per day on average.
13. Net equity issuance is very high. Especially in the finance area, where new capital is needed just to stay in business.
14. Oil above $100 is very bearish. This functions as an extra tax on beleaguered consumers.
15. The savings rate is 0. From 1960 to 1985, the personal savings rate hovered between 5% and 10%. Since then, it has steadily declined and now hovers around 0%. When you have no savings, retirement is simply impossible.
16. The U.S. is actually one of the best performing markets in the world this year. The S&P 500 is at 12.8%, compared with the United Kingdom (14.9%), France (22.9%), Australia (-18.9%), Germany (-21.9%) and Hong Kong (-20.5%).
17. Companies are technically insolvent. From General Motors (GM) to Ford (F) to Lehman Brothers (LEH), insolvency is the order of the day.
18. Level III assets continue to grow.
19. "Credit rot" is spreading from sub-prime to prime.
20. The dollar is sinking to new lows. The dollar index, a measure of our currency against foreign currencies, has now declined from 120 in early 2002 to an all-time low of 72. Our ability to buy things from the rest of the world is declining.
21. The Federal Reserve’s balance sheet is impaired. This is a result of accepting low-quality securities from investment banks in exchange for nearly $400 billion in Treasuries.
22. Mutual fund equity cash remains low. Though they once hovered around 8%, normal cash levels have steadily declined to less than 4%. This means that mutual fund managers will be forced to sell stock in order to honor investors' redemption requests. This creates downward pressure on equity prices as investors flee.
23. Individual investors are now taking money from their retirement accounts to survive. And that's just sad.
24. The market is technically on the verge of breaking down.
25. We've broken the 200-week moving average in the Dow Jones for the first time since 2003. This is a very long-term and bearish sign of breakdown.
This is really about systemic economic problems guys. Everything is not about politics. Does the media overplay it because a Republican is in the WH? Yes.
Nonetheless the problems are real and they aren’t going to be solved quickly.
You and many may believe the economy will decide this election but I don’t. Where this normal times and were the candidates not who they are, one being a black of Muslim descent who additionally has very suspicious associations in his past along with being the most liberal Senator in the Congress, I might have agreed.
Many may think his race means little and his background is not a big deal, but this combination will send him to a defeat that while not McGovern like, will nonetheless be decisive in it’s scope.
There are simply to many people who, while loath to admit it in our society supercharged with a PC mindset, will follow their hearts when they are in the privacy of the voting booth.
Remember this also when the lib media starts leaking exit polling results which will most assuredly be massively pro Hussein, as they were in 2004 for Kerry.
Yes, we are in a downswing economically. But compared to other countries, our average citizens are still much better off.
We all may have to drastically cut back but where else do you think you would like to be?
“We all may have to drastically cut back but where else do you think you would like to be?”
That’s easy, back in the 80’s bull market lol.
It’s not about where you want to be, it’s about where you are and how long it takes to get where you want to be with our economy.
Yes, but in which other country do you think average citizens have a better chance for prosperity right now?
Not many of us will ever be where we want to be financially.
Most of the people I meet are just treading water.
What is this a July 4th question?
We’re not the worst, we’re not the worst.......
We are in a Bear Market.
BTTT
If the “best of breed” are missing their numbers, what happens to the real dogs? Well managed companies (like United Parcel Service (UPS), Federal Express (FDX)... while i agree with most of the rest, i think this is beyond the range of their crystal balls or their control, with oil changing so much on a daily basis
No, I’m just in a discussion with others about our economy and they are trying to say ours is worse than other countries right now.
Yes, we are on a downswing but can one say that we are worse than other countries?
Isnt this political talk?
Yes, we are in a bear market but does that make a terrible economy? What about the markets in other countries? I just need to now how to answer my doom and gloom friends.
“Yes, we are in a bear market but does that make a terrible economy? What about the markets in other countries? I just need to now how to answer my doom and gloom friends.”
Yes, a bear market portrays a terrible economy, growth is sluggish and treading water to stay above negative growth.
To your gloom and doom friends, I’d say simply that economies are cyclical and we are in a slowing economy...on the positive side, we are not in recession as we have not had 1 quarter of negative growth let alone 2 which qualifies as a recession. The caveat is that we may still hit that requirement.
The reality is that as Americans we have a negative savings rate. Compared to other countries, especially Asian ones, they save there money. It will be hard to weather the storm without savings.
Also, in a down turning economy the American citizen now gets to compete with foreign illegal nationals working here. Joy.
The crap truly hasn't hit the fan. The dollar is gonna continue to fall. The bailouts are around the corner. The spending that McCain and Obama have planned will make Pres. Bush look like Dr. No.
The are tons of ARMS waiting to adjust and the financials are running around trying to add liquidity because they blew it.
Would you say the average citizen of Austrailia, the UK, and in Canada are better off financially than the average citizen here?
I’m talking about right now.
I for one am better off than I was in the 70’s with double-digit infation and interest rates and long gas lines.
I couldn’t go out to eat or go on a vacAtion. I am much better off today. And yes, all that could change.
All of that is true. To that, I would add the following:
26. We still don’t understand all the various couplings and counterparty risks in the derivatives markets.
27. There is still a huge amount of leverage being employed in hedge funds, investment banks and other large market players.
28. The credit ratings agencies have been exposed as incompetent frauds.
30. The monoline insurers are failing.
31. The Fed has invented new lending facilities to prevent the stigma for banks of coming to the discount window. In return for loaning liquid Treasuries, the Fed is accepting collateral of increasingly dubious quality and liquidity. While this program is “temporary” at the current time, now Paulson and Bernanke are talking about making these programs (TAF, et al) more permanent. This begs the question whether the dubious and illiquid collateral would ever be redeemed by those who borrowed from the Fed via these programs, or whether they’d accept the ongoing cost of having these assets parked at the Fed (single-digit percentages per month), away from markets, where they might suffer huge (> 50%) losses.
32. Neither presidential candidate has the financial IQ of a goldfish. The economic adviser for McCain is Phil Gramm, who brought us the CFMA, which is part of the root cause for problems we’re having now, and Obama’s economic policy ideas are about as stupid as truckload of fence post holes.
In other words, as stupid as policy is now, it can get worse. Much worse.
33. Distillate fuel is the fuel that keeps the economy going. Distillate is known as diesel, JetA, heating oil, etc. Jet fuel costs have just about finished the airline carriers off. If people think consumers are strapped now, wait until this winter comes along and they’re hit with $4 to $5/gal heating oil.
And diesel costs are pressing down on all manner of small businesses across the economy. I could give a rat’s rear end about gasoline prices. People can reduce their gasoline consumption pretty quickly - if they can buy a better mileage car, they can often quickly reduce their gasoline consumption.
Businesses often can’t improve their diesel consumption stats that much. When they can’t pass through the costs quickly enough, they go out of business.
26. We’re just a few months a way from the start “Obamanomics”. (Other wise known as Jimmy Carter’s economic program.)
Give it time. The government hacks and financial geniuses are making every effort to prop up the market. It’s futile and the market it going down further. Give it time.
No.
It’s Clinton, and it’s no monics.http://end-times-data.blogspot.com/2008/02/loser-john-mccain-to-clinton-horrible.html
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