Via Jim Stack’s Investech, comes this interesting view of how prior Bear Markets compare relative to the most recent 9% correction.
Jim does something a bit different — he depicts these prior Bear Makets starting from the most recent July 19 highs:
"Shown on this page are some the most significant bear markets of the
past 40 years. In historical terms, they range from the brief and mild
(1990) to the long and severe (1973-74 and 2000-02)
As you step through each, try to imagine what it would be like riding
the market down – where the DJIA would be by year-end, and how your
strategy might be affected if/when the DJIA broke 10,000. This will
help you understand your own tolerance for risk in the current market
climate, and what each would look like if it started at DJIA 14,000 on July 19, 2007"
Now consider that since that July 19 peak of just over 14,000, the Dow has yet to breach even
13,000 to close with a downside move of 10% (thanks to all who pointed out that my original comment was incorrect).
What is so fascinating to me, given the relative mildness of this pullback, is how much noise we have heard from the crowd — Sturm und Drang — as if this was Def Con 1. I like the way Dan Gross describes it, calling out the "motley collection of gazillionaires, conservatives, and industrialists begging the Fed to cut interest rates."
Thanks, Jim — great stuff.
The level of noise from the crowd is proportional to the amount of leverage and margin.
Kind of like listening to the shrieks from the riders of a rollercoaster – can you imagine the level of noise when we plunge over that last big upleg?
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!
Let the jackasses now eat cake!
The 20 highest-paid fund managers made an average of $657.5 million
The 20 highest-paid individuals at publicly traded corporations last year took home, on average, $36.4 million.
the 20 highest-paid European corporate managers made an average of $12.5 million, only one third as much as the 20 highest-earning U.S. executives
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.
The whining about what are already low interest rates just reveals the truth about “stock investment;” borrowed money.
Considering the last bear market was the longest and steepest decline in over 40 years how do you come to your conclusion?
I thought WSJ/Smart Money’s James B. Stewart made a few interesting comments yesterday. Here’s one:
“While we’re pondering history, it’s worth considering that most bear markets don’t begin with a ‘crisis’ or a sudden plunge in stock prices.”
I won’t venture to speculate but the current “crisis” seems a bit too obvious to be a Bear “signal.” No one knows for certain, but I get the sense that the mortgage mess, while significant in itself, is a distraction from something brewing around the corner. Unless something unforeseen comes along in the next few months, I suspect any news that the current crisis is waning will bring the last leg of the current Bull — then the Bear will begin in a less-obvious way…
Perhaps a greater student of history than I could weigh in?
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.
can´t imagine how Cramer can meltdown every time the Dow breaks another 1000 points….
But i doubt that he can top the last one
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!
The good news are “the CLI for August as published by the OECD are showing a healthy inflexion point on the upside for the US economy”.
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.
Some think this market is going to get whacked soon. There are 116,000 contracts on the September 700 S&P puts.
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.
My grandfather(vet of the 29′ crash) told me you don’t know the value of your pilot, skipper or physician till the $#%$#% hits the fan. Boy are these captains of industry and finance showing their true colors. There is no question that under all these uber-capitalists resides the socialist/communist underneath led by comrade-n-chief Kudlow. When biz is fabulous I am brilliant, innovative, a master of the universe but when biz stinks I demand rate cuts/bailouts and petition DC for action. We can officially pronounce free market capitalism as dead.
Great blog and continued success to you.
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.
In 2000-02 bear market, lots of small investors got caught holding the garbage.
This time it seems that large players are on the receiving end. Hence the louder and more visible pleas to save their behind.
Just my opinion.
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.
Grodge…..the point is how low can we go if this is a bear market…..and if so how should be balance our portfolio to absorb the shock…
everyone knows that the market goes up after the correction/slump/crash…..but we cannot stomach 30% hair cut and still think all is good if the market goes up after that.
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.
Fascinating – thanks for posting. Very informative and consistent with my amateur interpretations of the charts. A look at the longer-term trends is up in any earlier post of mine at:
While I’m not much of a technician we’ve not really touched the last four year uptrend. This is a minor blip except for the even more minor “detail” of the worldwide credit seizure a couple of weeks ago. If this really turns into a bear market we’ve got a long…long way to go.
When will reality set in ? If ever ?
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.
Gee, I wonder if all these corporate insiders that are buying their own shares (at record levels) in the open market a bleeping idiots?
I would like to see these charts overlayed with insider buying activity…my guess is you wouldn’t see any (like they are today).
What say ye Barry?
The uncertainty ended when he invaded Iraq. War is good for business, also.
Small minds, small profits.
reality cannot “set in” in on a system (U.S.A.) that is completely based on debt as a measure of wealth and prosperity.
TPTB (the Powers That Be) benefit too much by keeeping the system intact.
If you expand your 4 year chart to look at the $NYA – New York Composite to max, starting in 1975 – it will look similar to the last 4 year chart you mention (the uptrend/channel is still intact).
I bet the US debt chart looks the same…
For a “real” look at this market, try the monthly chart. This is barely a pimple on a dinosaur’s ass.
Jim Cramer is a conservative?
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.
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…and these are not option excersises. They have to file when they make these purchases.
Please read this article.
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.
Fred – I’d bet the biggest insider buying is in tech right now. Is there a way to confirm this?
Here is a chart of the historical bear markets, Return versus Duration style:
Isn’t using the DJIA as any kind of historic reference a bit unscientific as it has been so jiggered with over the years with all the component changes? Like WalMart and HomeDepot? Certainly I would think it reflects less on the overall health of the economy, and is now much more specific to the stocks themselves.
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?
I saw that Bloomberg piece on insider buying at the financials. What I thought is how thin a sample of the sector that it represented. What was more interesting too me was how many firms were NOT represented on the list of buyers. So what we have are a few financial firms caught in the down draft where insiders see a value, and a bunch where the insiders are putting their investment $s elsewhere. Given the wreckage in the financials, I was surprised that there were fewer buys from an insider perspective.
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)
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? ;-)
Hm. Fred, I had put open and close “good natured ribbing” markups on my post. Seems the comment box snarfed them up as bad html. Anyway, though I usually disagree, I appreciate your perspective. I think 90% of the times are bad times to be short the U.S. economy. These are 10% times. I hope. Or else I am gonna take it “in the shorts” =p
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
Three month LIBOR up another 4 ticks to 5.62%, but folks don’t worry because the gubbment is gonna save all our asses. Dorothy’s Ruby Slippers were found yesterday at the WH, and all hat and no cattle will come riding into town to save the day.
>>>”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.