Quote of the Day: Paul Desmond on Bear Markets

Your mileage may vary:

"In the average bear market, the Dow Jones Industrial Average has fallen 30% and sometimes much, much more. The Dow decline of 2000 through 2003 involved a loss of 55%, the bear of ’73-’74 caused a 50% loss and the 1929 market wiped out a full 85% of the Dow’s value."

"We think we’re still quite a ways from a bottom. Over the next year, the Dow could fall 30% to 50% from its October ’07 top. The market could enjoy a few short-lived rallies during that span, like the one we experienced from March through May. But each rally is apt to result in a lower high and a lower low in the market."

-Paul Desmond, Lowry Research, quoted in Barrron’s


Q&A: Paul Desmond of Lowry’s Reports  (February 2006) 

Part II — Q&A: Paul Desmond of Lowry’s Reports  (February 2006) 


Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. Lars commented on Jun 28

    A couple of thousand points to go…hold on.

  2. Mike in Nola commented on Jun 28

    What can you say. Highest info to BS ratio of any opinion lately. No false precision. Gives a reasonable basis.

  3. Becky commented on Jun 28

    Barry, thanks! Hard to argue with Desmond!

  4. Jim Haygood commented on Jun 28

    “The Dow decline of 2000 through 2003 involved a loss of 55%.”

    This is a total, reeking crock of lies. Let’s do the math, class. It ain’t that hard:

    Jan 14, 2000 — record high — 11,723
    Oct 9, 2002 — bear mkt low — 7,286

    Percent decline = 1 – (7286/11723) = 37.8%, MILES AWAY from “55%”

    Paul Desmond — lyin’ like the BLS. But unlike “Barron’s”, some of us have memories that extend back more than 72 hours.

    And by the way, the 1929-1932 loss was 89%, not 85%. Is third-grade math really that challenging? Probably so, if you’ve got a “journalism” degree!

  5. Les Lofton commented on Jun 28

    I also questioned that 55% number. I suppose he have been thinking about the NASDAQ.

  6. HCF commented on Jun 28


    First, he co-writes “Take Five” and now Paul Desmond is doing analysis on the bear market (from beyond the grave, no less)?


  7. Will Rahal commented on Jun 28

    Despite the errors in calculation, the concept is powerfully important:
    This week the market recognized the recession. The implications of lower earnings are obvious. If you take a “normal”
    P/E of 14 or 15 and multiply it by a 30-40% drop in EPS for the S&P you can easily end up with a 50% drop for the index in this bear market.

    By the way the tax rebate has not helped: an increase in Non-Durable Goods consumption and a decrease in Durable Good took place.
    I have been claiming that the increase in the ratio of ND/DG consumption would lead to an economic mess as less discretionary spending woul follow.

    The stock market just confirmed this.
    I have updated this ratio in

  8. Jim Haygood commented on Jun 28

    Les Lofton — good guess!

    But the Naz went from a high of 5,048 on 10 Mar 2000 to a low of 1,114 on 9 Oct 2002. That’s a drop of nearly 78%.

    All the historical index values are posted on Yahoo Finance. Anybody can download them, free.

  9. BG commented on Jun 28

    Regardless of the percentages in the decline, the thing that concerns me most is that there has probably never been a financial market as leveraged as this one is.

    Every significant down-draft will trigger a deluge of margin calls and selling will beget more selling.

    Since the Fed has already shot 65% of their wad, the Fed will not be able to ride in and save the day as they have done in similar circumstances over the last 25 years.

    I just think that this situation is not one we are going to be able to talk ourselves out of and will probably end in a breath-taking plunge that finally will wring all of the excess out of the system (and then some). I’m just not sure where that will leave all of us after the fact. I’m afraid there lies a long road in front of us before getting thru this.

  10. Tom F. commented on Jun 28

    “In the average bear market, the Dow Jones Industrial Average has fallen 30% and sometimes much, much more. The Dow decline of 2000 through 2003 involved a loss of 55%, the bear of ’73-’74 caused a 50% loss and the 1929 market wiped out a full 85% of the Dow’s value.”

    Aside from the fact that the 2000 bear market statistic is horribly wrong, the quote is wrongly attributed to Paul Desmond. Those are the words of Barron’s writer Jacqueline Doherty.

  11. VennData commented on Jun 28

    Sign of the bear? Dancing bear… anyone see all the cartoon characters running across the top of the WSJ weekend? Has Rupert Murdock lost it?

  12. ECONOMISTA NON GRATA commented on Jun 28

    This time they may be right…. “things may really be different…”

    Perhaps, breaking the 2003 low basis the S&P of aprox. 775….


    If that happens, I’ll buy the shoes to go with the laces… ;-)


  13. wilson commented on Jun 28

    Thanks HCF – Assumed this was Barry’s usual Saturday night interlude. My favorite solo work of Paul’s is “From The Hot Afternoon”, apt for a cusp-of-July June afternoon into evening.

    The work with Brubeck is genius. The tone, syncopation, and rhythms are so sweet it’s impossible to do anything but just surrender to it’s magic.

  14. leftback commented on Jun 28

    wilson – do you Pickett?

    This market is going lower than most greater fools can possibly imagine, and yet the NASDAQ drop from 5000 to 1115 is within recent memory. Talk about brainwashed !! Or is it brain dead ??

    Barry, I agree with the recent statements about corporates and high yield rates rising. “credit market gonna blow…”

    Is there for a way for smaller investors to profit by being Bearish of corporate debt? The best I could find was a Rydex fund called RYIYX – I have been in and out of this since September – the fund holds CDS, and shorts bonds. It has followed the TED spread to some extent since the end of the Fed interventions in March, although it was slaughtered during the rate cut orgy of course. But that’s over now.

    Anyone got a better vehicle?

  15. rickrude commented on Jun 28

    Regardless of the percentages in the decline, the thing that concerns me most is that there has probably never been a financial market as leveraged as this one is.

    Posted by: BG | Jun 28, 2008 7:33:15 PM

    Well, hum, I think it is delevering right now.
    So no worries here. I am bullish on energy,
    I will not sit in cash (USD) through this bear market, no way.

  16. JMH commented on Jun 28

    Time for some Saturday TA. Pull up a historical chart of the SP500, set the interval to monthly bars. I like candlesticks, but they are not necessary for the following exercise:

    The first thing I noticed is bear markets seem to be preceded by 2 or more (monthly) consecutive declines in the SP500. My charting software goes back to ’62, so I will start there. The SP500 declined in both April and May of 62. The real plunge came in June. July registered another decline, with the SP500 bottoming at 56+, with a low closer to 51.

    The next bear came in ’66, after declines in May and June. The bear took the SP500 from 91 to 73. In 68 there were two monthly declines, Feb and March. The market rallied from there, though. TA ain’t perfect! (TAAP)

    June and July of 69 signaled the next bear, with a decline from 104 to 93. Same thing in Dec 69 and Jan 70, taking the SP500 from 97 to 73. May and June of 71 registered two more. Really interesting is Jan-June 73. Every month registered a decline! Nov and Dec registered declines as well. If you got out in Feb, you avoided the decline from 114 to 66.

    Aug and Sep of 75 were the next paired declines, but the market rallied again. TAAP. Nov and Dec 76 were the next two, followed by Jan and Feb 77. From there (100) the index rallied a bit, and then dropped to 89. Just when the model starts to look really good, it doesn’t: From 78-82 there were a few more paired declines, but they didn’t precede any severe bear markets. The bull market starting of 1982 – 2000 registered paired declines every year except 86, 92, 93, 95, and 99. If you got out every time there were paired declines, your returns would not have been as good as they could have been. (I recognize I haven’t discussed when to go long.) An additional criterion is needed. I found that if the sum of the decline of the two bars is greater than 3%, they can be disregarded. But if the third bar is down, it’s best to exit.

    The 2000-2003 bear displayed many paired declines. Using the 3% rule, you would be out as of Nov 2000. What about now? Paired declines exceeding 3% occurred June and July of 2007. This was followed by another pair in Oct and Nov. May and June of 2008 have registered another set. Based on the above, this is quite bearish. That’s not to say there won’t be a big rally in the near future, possibly exceeding 100 points. (See April 2001) But it won’t be Goldilocks! It will be her stogie smoking aunt after a rhytidectomy and an abdominoplasty! Probably some breath mints and hair coloring, too.

  17. simon commented on Jun 28

    I have a couple of ideas.

    Inflation is bad in the US but not as bad as in the East. The eastern countries are good savers. The money they have saved will be obliterated by a sever bout of inflation.

    Before that happens they will have a major panic about where to put their money before it all goes up in smoke.

    If there is a deep world wide recession all equity market will decline a lot. Savings aren’t safe due to inflation. Commodities will come off the boil until recovery is in sight.

    Whats left??

    Gold and maybe silver are my bet. But they surly will be one hell of a roller coaster.

    Another possible point worth making is that it will truly suck to have all your hard earned savings wiped out. Anyone who suffers that and finds they can blame a central bank somewhere will likely be rather bitter.

    I’m not talking about US citizens here although the savers among them will not be pleased. Overall a big dose of inflation may cure a lot of problems for the US not the least of which being the public and private deficits.

    Those that made the loans to finance the deficits may be mighty agreaved.

    Its been done before and If I was a central banker it’d look mighty tempting.

    PS I’m just a learner here. I do find it all very engrossing.

  18. dave54 commented on Jun 28

    KUDLOW & CO., not just in bear-markets but perennially, maybe should feature a regular ‘What-to-Sell’ segment:

    Have you seen the chart?
    Fed did what?…Little bird told me
    Read in BARRON’S…Heard on MAD MONEY
    Think I was born yesterday, pal?
    Way-overvalued…WTF!…Oh, agony
    Walking into rush-hour traffic
    Wars & rumors of (takeover) wars
    No, seriously, have you seen the chart?
    Confernce call meltdowns
    Congress passed what?!
    Merrill put a HOLD (nose) on the stock
    Icahn’s buying TWA…I mean, YAHOO!
    I need a drink

  19. fred krueger commented on Jun 29

    this seems to lead to the following scenario:

    1. banks continue to tighten credit standards.
    2. home prices continue to fall.
    3. the american and european consumer is forced to spend less because they can borrow less.
    4. the drop in spending forces companies gloably to cut prices and reduce staff
    5. increased unemployment causes wages to stagnate or even fall

    now comes the question of who comes in in november

    Case A: obama wins

    6. war spending goes down
    7. taxes go up
    8. sympathy for america goes up
    9. the dollar probably rallies
    10. US exporters no longer enjoy the impact of the weak dollar
    11. cost of imported goods goes down
    12. gold goes down
    13. the combination of higher taxes plus the continued impact of 1-5 keep the economy weak
    14. with non energy inflation low the fed keeps rates low to help the economy
    15. china and india are hit hard because of lower US and european demand
    16. lower growth rates for china and india, plus lower US demand move oil lower
    17. corporate earnings are hit big time, especially exporters
    18. stocks overall probably fall, but maybee not much more after the election.
    19. eventually the low rates repair the banks balence sheets, and start producing nice profits for the financials, even with the economy in a mess (2009)
    20. any consumer stocks gets killed
    21. bonds do well.
    22. obama slaps a tax on integrated oil companies.

    in this scenario you want to be out of gold, long $, avoid us exporters, short china and india, short consumer stocks, long bonds, probably long the financials starting in late 2008,

    case B: mccain wins

    6. taxes probably stay where they are
    7. continued war spending
    8. continued hatred of america (but better than bush)
    9. continued fall in the dollar
    10. cost of imported goods goes up
    11. exporters continue to do OK, purely on the weakness in the $
    12. china and india still do horribly
    13. consumer stocks do horribly
    14. there is pressure on the fed to increase rates, to save the dollar
    15. gold does spectacularily
    16. bonds get killed
    17. the financials get absolutely killed
    18. oil prices still very high

    in this scenario, you want to be long gold, short dollars, short stocks (except for exporters), long oil, short bonds.

  20. Darin commented on Jun 29

    I think that gold is going to get crushed within the next three weeks as the various exchanges are forced to alter futures contracts for oil, gold and most other commodities. It looks like a ton of funds have rolled into tens of thousands of contracts fleeing equities. It should recover in 12 months to around 800 or so, but it will loose about 20 to 30% of its value in less than 30 days.
    Cash, as many others have already pointed out, is out of the question because of runaway inflation.
    Since there are very few fundamentalists left on the Street, perception will rule the day. Stocks will decline 10 to 15% more, and then once they feel like most of the major losses are booked, will quickly ride much, much higher in the next 6 months. The prime catalyst will be the (perceived) stabilization of the dollar. The dollar will be stabilized by the EU/China central banks, both of whom do not want to see the USD make American exports so much more competitive than they already have. They will intervene in Tbill auctions and rates will drop across the yield curve over the next 12 months. The housing market will stop its free fall by March of 09, prices will stabilize or at least stagnate. They will be partly motivated by the FED/US Treasury as Bernanke/Paulson will remind them of what veering left or right will cost them. Their incentive, beyond their USD reserves will be access to the US market. Inflation will cure the consumers balance sheet problems, along with the US government’s. The real losers will be the Boomers, whose entire retirement wealth will all but be wiped out. They will die penniless, beholden to their children, and only marginally influential in politics.

  21. eh commented on Jun 29

    The average decline of whatever index you look at depends on how you define ‘bear market’, so the whole discussion is arbitrary.

  22. Simon commented on Jun 29

    Fred Kreuger, I don’t see how Obama winning can make such a big difference. Sure It’ll make a difference long term but changes he makes won’t take effect until late 2009 surely?

    In the mean time the great unwind continues doesn’t it?

    That means money supply contracts in the US and the rest of the world, more banks fail, lending slows drastically.

    My Gold call… really “the call credit” belongs elsewhere, any number of people tout gold all day long Marc Faber is long gold for example…

    But my thinking is that it will be the people who are really really under the gun with inflation that will be looking closely at Gold and with inflation spiking up all around the world that may be quite a large number of people.

  23. Sing Expat commented on Jun 30

    These guys must have stretched sphincters from pulling so many numbers out of their asses.

    Can some sane, respected, honest pundit please simply sit down and calculate PE ratios, inflation, consumer spending, credit crunches, etc, and tell us honestly where the prices of stocks should be.

    Think about PE ratios on financials for the past seven years. We were told they were low and a buy. But financials have written off over 50% of the profits from the past seven years. And will write off another 25-50% of it. So Earnings go to ZERO and PE ratio goes to infinity, just like the Dotcom bubble.

    Where will earnings go? Realistically, not in Bernanke World or Bush Land. Where does that tell us where this bear market will end up.

    It is obvious that there was a massive bubble in real estate. Less talked about is the massive, fraudulent bubble in earnings on Wall Street and other sectors. That money was milked for bonuses but was never really there.

    bye, bye Dow. We’ll see 8000 within a year.

  24. James commented on Jun 30

    This article was slanted from the very beginning.

    “In the average bear market, the Dow Jones Industrial Average has fallen 30% and sometimes much, much more.”

    By it’s very definition, average means you have values above it and values below it…..Telling us the Dow has fallen an AVERAGE of 30% in a bear market, and then feeling the need to tell us sometimes it falls much much more is redundant and irrelevant and is used to reinforce a negative view..Well guess what, sometimes it falls much much LESS too. That’s how we derive an AVERAGE.

    .Please just give us the facts when quoting stats.

  25. ben commented on Jun 30

    I pulled some data from Ned Davis, Lehman Bros. I got something different, these are S&P stats though, probably far more representative of the market and economy considering it is more diversified than the DOW 30:

    Since the end of WW II there have been 10 recessions and 10 “bear markets” using the 20% rule, or one every 5.8 years.

    On average market declines began approximately six months before the start of a recession and continued to decline for another five to six months after the start.
    (Where does that leave us today???)

    The average market decline during these recessions was 22.6%, while the median decline was 17.4%. The highest decline was 46.3% in 2001 and the lowest was 6.6% in 1980 (This assumes that dividends were re-invested during the period)

    On the bright side:

    If you look at the subsequent gains from the market following a recession, they have been impressive:
    After 3 months they gained 16%
    After 6 months they gained 24%
    After 12 months they gained 32%

    Since in GDP terms we haven’t “officially” had a negative quarter we should probably have some more pain ahead of us, but there are better days to come.

Posted Under