A Historical Perspective of Recent Bear Markets

I would add Liberals to this list as well. Where the Hell were Chuck and Chris when the mortgage industry and fellow players were selling this toxic shit to consumers, foreign entities and FCB’s? Oh that’s right, the dumbasses were heaping praise on the maestro for his work.

It’s at least obvious to me that both parties can give a rat’s ass concerning the little guy/gal. It’s the elites against the rest of us sheeple!

Actually, I have a little more abstract view.

The free flow of information is creating a world that has less variation. The information flow allows people to react more quickly by using better information. Basically, the natural ‘world standard deviation’ is getting smaller, causing more volatility, but in a tighter range. It’s a traders dream world, actually. Right now, the cycle appears to be about 6 – 9 months, although that is only a guess on my part.

Plus, babies learn at the age of two that tantrums get attention and sometimes work wonders. Look at how many crybabies make it into leadership positions.

cinefoz,

Considering the last bear market was the longest and steepest decline in over 40 years how do you come to your conclusion?

Of Course – this just may be the beginning
Actually bear markets begin slowly and there is plenty of time to adjust – what we may be seeing is everyone just jocking and most in denial still. Who Knows…..Also if Fed keeps interfering with the markets – they could actually be multiplying what the effects might be.

Observed on nytimes.com business section homepage at 8:51am:

Fed Rate Hopes Calm Turmoil
17 minutes ago
Freddie Mac Reports $764 Million Net Income
23 minutes ago
Futures Drop With Outlook For Rate Cut Murky
24 minutes ago
.
.
.

Everyone’s calm, expecting a rate cut! Wait…no…everyone’s scared that rates won’t be cut!

cinefoz,

Considering the last bear market was the longest and steepest decline in over 40 years how do you come to your conclusion?

reply: The last decline was caused by the burst of new era economy plus the attacks on the WTC. Plus GWB and his need for war created uncertainty that added to the mess. None of those conditions exist today.

SarBox is helping keep people more honest, most people see through GWB’s crap and he is less dangerous now, and free flowing information is making the playing field more level. More people are using the internet now than before.

Anyway, if you don’t see the trend then fine with me.

Martin Wolfe tore Benny a new one yesterday. Time for the FED to trot out IP of the WSJ who is their mouthpiece to the markets. Carnival barker comes to mind!

From Naked Capitism Blog:
The WSJ’s Greg Ip Defends Bernanke Against Martin Wolf

Frankly, this is pathetic. If Bernanke and his minions can’t take the heat of some well-deserved criticism from the highly-regarded Martin Wolf of the Financial Times, they don’t belong in public service.

To recap: yesterday, Wolf issued a stinging rebuke of Bernanke’s conduct on the Financial Times editorial page, in “Central banks should not rescue fools.”

Wolf first took aim at Bernanke for giving all appearances of having submitted to political pressure. The Fed chairman not only met with Henry Paulson and Senate Banking Committee chairman Christopher Dodd, but then appeared jointly with them. The Federal Reserve is supposed to be independent, yet as Wolf put it, “This showed Mr Bernanke as a performer in a political circus.”

His next criticism:

Policymakers must distinguish two objectives: the first is macroeconomic stability; the second is a sound financial system. These are not the same thing. Policymakers must not only distinguish these objectives, but be seen to do so. The Federal Reserve failed to do this when it issued statements, on prospects for the economy and on emergency lending, on August 17. This unavoidably – and undesirably – confused the two goals.

Enter Greg Ip of the Wall Street Journal. Ip is widely considered to be a preferred, if not the preferred, outlet for informal communications from the Fed.

Now as of this hour, the WSJ first page’s “What’s News” column has this summary of an article by Ip as its lead item:

Bernanke is showing signs of a break with Greenspan by distinguishing between the Fed’s two main roles of maintaining financial and economic stability.

This is a direct rebuttal to Wolf, editorializtion masquerading as news.

It gets worse. From the article “Bernanke Breaks Greenspan Mold,” by Ip:

To Mr. Greenspan, market confidence and the economy’s growth prospects were so intertwined as to make the Fed’s two duties almost inseparable. He cut rates after the 1987 stock-market crash and the near-collapse of hedge fund Long-Term Capital Management in 1998 to prevent investor reluctance to take risks from undermining the nation’s economic growth.

By contrast, Mr. Bernanke distinguishes between the central bank’s two functions. So, on Aug. 17, the Fed cut the interest rate and lengthened the term on loans to banks from its little-used discount window in hopes banks would use the window — or at least the knowledge it was available — to lend to solid borrowers having trouble getting credit amidst the market turmoil. The action was aimed at restoring the normal functioning of disrupted credit markets, not primarily at boosting growth.

Ip should be too seasoned a Fed watcher to buy this bunk (although some have suggested he serves as a scribe for the Fed). And it goes without saying that the existence of Wolf’s piece is never mentioned.

The discount window was not an effective mechanism for dealing with the seize up in the money markets, which was where the crisis lay. That problem resulted from a repudiation of asset backed commercial paper, which potential buyers feared might be tainted by subprime exposure. Many of the issuers who couldn’t roll it were either corporations or special purpose entities that had no access to the bank discount window. Thus Bernanke’s move was no remedy.

As we said at the time, the important act that day was not the discount rate cut, which was merely symbolic, but the Bernanke commitment via Dodd, that the Fed stood ready to act, which traders have taken as a promise that a Fed funds rate cut is soon coming. In fact, our reaction on August 17 was that Bernanke’s actions showed him to be the true heir of “Greenspan put” Al. But Ip would have us believe otherwise.

Our dim view is further confirmed by the fact that the Fed has allowed the Fed funds rate to trade below its target levels for most of the last two weeks (chart courtesy Calculated Risk):

Calculated Risk notes that this de facto easing is much less than during the 9/11 period.

So we can either believe Ip is an idiot or he is so loyal to his Fed sources that he will take a story line from them and faithfully write it up. I’m inclined towards the latter view. And if true, that is even more discouraging that what Wolf told us yesterday.

To add fairness, the graphs should include the following 12-18 months as well. The markets usually recover with time, and we should be careful about cherry-picking the bearish part of the cycle.

Other kinds of psychological fallout are showing up as well: The ridiculousness of the layers of loans – sometimes I think I can count up to eight different loans (bets) made, one on top of another, resting on a base of mortgages – as well as the current chorus calling for a rate cut (and they are all using the same language – remember a couple of weeks ago when different commentators were insinuating Bernanke was an “academic” (unfit, perhaps to regulate men of commerce?) – well, it’s all made me decide that the market is so deeply corrupted that no one without millions of dollars can invest with any confidence.

I mean, I have to keep some of my retirement money in stocks – though I am just going to move to an index fund. But, other than that, the various commercial markets are now so much under the control of the very richest, that I will look elsewhere to put my money.

I doubt that Wall Street needs investment from people like me any more. What they need are revenue streams guaranteed by the federal government and paid for by taxpayers.

If I remember right, and if I was fed correct info, corporations were holding back capital expendatures and buying back stock months and months back. Initiating todays recession fears.

Now the folks are calling for better interest rates.

Looks like the games is ready to push those piles of hedge fund cash out to real assets soon.

On this Labor Day weekend I’ll be conjuring ways to stay on the + side without helping the orchestrators.

ps – I’m behind the times, just rented ‘Roger & Me’ on DVD with Mikes 2003 commentary of the making of the movie. Good movie of bad times.

cinefoz,

You said: “Plus GWB and his need for war created uncertainty that added to the mess.”

The war started in the spring of 2003. It coincides almost exactly with the the turning point of the last bear. Its pretty hard to argue that it contributed to the bear since the bear ended as the war started.

red Ocean,

The uncertainty ended when he invaded Iraq. War is good for business, also.

Small minds, small profits.

For a “real” look at this market, try the monthly chart. This is barely a pimple on a dinosaur’s ass.

Fred – isn’t buying your own stock back with other peoples money a no brainer?

Prices are higher on a takeover prospect. Stats on the surface look good to investors, and entry is at a higher cost.

MarkTX – a worthwhile exercise but if you parse that chart really scary. Tempted to quote John Maynard – “in the long run…” but notice you can break that chart into periods. ’75-85 flat and so was real economic growth. ’85-’95 real pickup based on real growth, ’95-’00 combination of investment and koolaid followed by de-tox. Now what explains the last four years ? Real economic growth has been o.k. but mediocre and employment terrible in terms of net job creation. Think its’ a combination of the Fed creating a stable/predictable environment and credit leverage thru structured products like we’ve never seen. As somebody said Goldilocks is the father of Minsky moment – that is if things go on to well for too long everybody assumes that’s the nature of universal reality, starts moving from prudent financing to speculative to Ponzi schemes.

On that scale where are we at now ? The world wonders – or it should but is pretending not to.

Here is a chart of the historical bear markets, Return versus Duration style:
http://www.imagegrip.com/uploads/f1d3b33a9d.png

It would be really interesting to plot the FED moves on these charts…meaning when did they lower rates during these previous bear markets. Any chance this can be done?

Thanks

Fred said:I’m not referring to “stock buybacks”. I am referring to DIRECT PERSONAL purchases from insiders (Directors, CEO’s, CFO, etc) for their OWN account in the open market… (snip)

http://www.business-standard.com/banking/storypage.php?tab=r&autono=296006&subLeft=1&leftnm=2

/fred

Fred, I totally agree. Those idiot insiders are maintaining the hopeless optimism that things will only get better, which is the root cause of the economic bind in the first place. Nice of them to refund to other stock holders some of that money they had previously banked. Or was that not how you meant us to read it? ;-)

I think part of the problem is 20 years of Greenspanic rule. Most of those in the market today have been under the hand of Greenspan and have been trained, deeply conditioned even, to EXPECT the Greenspan put to be activated at any sign of trouble. It is Pavlov’s dog all over again

Bernanke is going to make the effort to wean the market off that conditioning but it is like dealing with a drunk who has hit bottom. You’re going to have to put up with some crying and screaming and a few broken table lamps. THEN maybe things will quiet down and we can go about building a new more productive life. It is only then the market can again think about a system that uses not only the gas pedal and the front window but it again learns how to use the brake and the rear view mirror. That will take time. Nanny markets make traders lazy but the freer market will whip it self into shape soon enough and the ones who can’t cut it and get wiped out never deserved to be here in the first place

>>>”Bernanke is going to make the effort to wean the market off that conditioning” — More likely is that the strategy has changed since globalization is an irreversible force now. New tactics are needed now to maintain the pre-eminence of the old guard in the core banking system that runs (owns) the world.