Reasons to Be Bearish: Plus Ca Change

At Daily Speculations, Victor Niederhoffer and Laurel Kenner’s site, there’s an interesting excerpt  from Venita Van Caspel’s book "The Power of Money Dynamics."  (The book was so highly spoken of at Vic’s site and cost next to nothing on Amazon that I ordered a copy).

Anyway, the post is titled "Reasons to Be Bearish: Plus Ca Change," by Steve Ellison.

I must admit, I am not sure exactly what the author’s point is. Sure, there’s always something to be Bearish about. On the other hand, some of these reasons were damned good ones, and those years you did better in cash or net short:

1934: Depression
1935: Civil war in Spain
1936: Economy still struggling
1937: Recession
1938: War clouds gather
1939: War in Europe
1940: France falls
1941: Pearl Harbor
1942: Wartime price controls
1943: Industry mobilizes
1944: Consumer goods shortages
1945: Post-war recession predicted
1946: Dow tops 200 – market "too high"
1947: Cold war begins
1948: Berlin blockade
1949: Russia explodes A-bomb
1950: Korean war
1951: Excess profits tax
1952: U.S. seizes steel mills
1953: Russia explodes H-bomb
1954: Dow tops 300 – market "too high"
1955: Eisenhower illness
1956: Suez crisis
1957: Russia launches Sputnik
1958: Recession
1959: Castro seizes power in Cuba
1960: Russians down U-2 plane
1961: Berlin Wall erected
1962: Cuban missile crisis
1963: Kennedy assassinated
1964: Gulf of Tonkin
1965: Civil rights marches

1966: Vietnam war escalates  Dow hits 1,000
1967: Newark race riots
1968: USS Pueblo seized
1969: Money tightens; market falls
1970: Cambodia invaded; war spreads
1971: Wage-price freeze
1972: Largest U.S. trade deficit in history
1973: Energy crisis
1974: Steepest market drop in four decades
1975: Clouded economic prospects
1976: Economic recover slows
1977: Market slumps
1978: Interest rates rise
1979: Oil prices skyrocket
1980: Interest rates at all-time highs
1981: Steep recession begins    Dow still below 1,000

(Van Caspel, 1983, pp. 124-125)

Daily Speculations does not seem to use permalinks, so I am reproducing this here (Hey, Vic or Steve, am I missing the permalinks

Readers of The Big Picture know that I’m no perma-bear; I flip Bullish and Bearish as market conditions dictate. So whne I look at a list such as this, snarky though it may be, some of
those reasons turned out to be damned good ones; Out of
equities or short or in alternative
investments — did better than stocks.

The key point is  to not merely look for the  dark cloud or the silver lining; Rather, its to put those factors into context in order to get a handle on the most likely probability for future market behavior.


Finally, Daily Speculations offers this converse view: Dept. of Doomsday: Word from the Bearish Camp, via Derek Gard

The reality is, during [the past century] there are many long stretches where the market does not offer a positive return. As such, one must be mindful of when to put money into the market.

I recently received the following data to illustrate this point:

Period DJIA Return # Years
AUG 1886 to NOV 1903 -16% 17
SEP 1899 to JUL 1932 -27% 33
JAN 1906 to AUG 1921 -15% 15
NOV 1919 to APR 1942 -22% 23
SEP 1929 to JAN 1950 -50% 21
AUG 1959 to DEC 1974 -17% 15
FEB 1966 to AUG 1982 -23% 16

Since 1903, there have been 26 different years where at some point that year the DJIA was lower than at some point 15 or more years earlier. In other words, 25% of the total number of years falls into this category. If you are an investor who believes 10% returns are a right, then I am afraid you will be disappointed. For many people, 15 years is a bulk of their investing lifetimes. You must make the most of those years, and it is possible stocks are not the place to put your money.

Its all about context . . .


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  1. lee commented on May 14

    I guess I could be called a big-picture bear in that I don’t see how 20 years of debt-fueled growth and bubble-blowing can end in anything but some sort of wash-out. But I don’t let that get in the way of making shorter-term investing decisions. In the end, of course, we’re all dead.

    So I swing with the swings and let price action and charting dictate my entries and exits.

    I find it curious to keep reading so much bullish commentary. Many bulls today seem to believe that prosperity (higher stock prices) are just around the corner or they appear to be downright angry that the market isn’t behaving according to their sanguine viewpoint.

    They keep trotting out one reason after another as to why the market should be higher: 1) years that end in ‘5’ always are up; 2) the market is 38% undervalued according to some theory or another; etc.

    It reminds me of the old line, “Do you believe me or your lying eyes?” My eyes are seeing crappy price action. And that’s all I need to know. Theories about undervaluation or historical patterns mean nothing without positive price action.

    The current situation appears to be a reverse of March 2003. The bears were heavily short back then. And even when the market took off like a banshee, they didn’t believe it. In fact, the COT report showed that large speculators were even shorter in April 2003 than in March, even though prices were substantially higher. They refused to believe their lying eyes and they got blown out of the water.

    Will the market recover and go on to make new highs? Will we revisit the 2002 lows or go even lower? I have no idea. But the price action will provide the roapmap. And right now it’s saying “Stay Out of the Market”.

  2. Dan commented on May 14

    I see this kind of looking back for years of no return a lot, but I think it can be very misleading. Just looking at the data you present for all these periods, it can mislead one that almost no year is good for investing.

    Note that even if nasdaq goes up 10% a year, it will not reach the level it had in early 2000 anytime soon. Concluding that all these 10% years are bad would be incorrect. The correct conclusion is that 2000/1/2 were bad.

    A much better metric would be years that didn’t return equivalent of n year compounded x% within a time range, say n+-2 years. I am not interested in a fixed length period such as 5 years, but rather allow that sometime around 5th year the market can be quite volatile so you may end up with negative returns on forced exits from the market, but with either prudence or not too long patience, you can reach your 5 year x% goal, a bit early or late, respectively.

  3. fred commented on May 15

    Really great post. Didn’t know Niederoffer had a blog. And — its exactly as confusing and arrogant as I would have expected it to be.

    On the cycles. I think the lesson is that cycles can be very long. Doesnt mean that cash is always the best alternative — clearly real estate has been the better asset class by a long shot recently — but stocks do not come with a money back guarantee.

    The best asset class — in my opinion — is a business that is growing and making mony

  4. D.Wallener commented on May 15

    Victor Niederhoffer is a consistent put seller, which explains both why he’s inclined to dismiss the downside and why he has a propensity to blow up. He’s talking up his book, and praying like hell lightning doesn’t strike (yet) again.

  5. Mark commented on May 17

    The last thing Niederhoffer is doing is talking up a book written two years ago that wasn’t even a strong seller. His accounts are up or down more in a day than was made on that book. Very naive.

    As for blowing up, it would require doing so on more than one occasion to make a propensity of it. Not to dismiss the severity of such a situation.

    The “World’s Greatest Stock Trader” and undeserving legend Jesse Livermore blew up time and time again before taking his own life. Yet he is revered. There’s no sense that can be made of it.

    Even the atheist prays not to be struck by lightening, they just do so privately so as not to let the hypocrisy be known.

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