Tag Archives: stocks

Have we reached the bottom?

Investors and pundits who have been trained by the last twenty years that every stock market decline is a sure-fire money making opportunity are chatting up the notion that we have seen the bottoms and this is a gold-plated moment in history to snap up stocks at bargain prices.

Unfortunately, 20 years of personal experience is not long enough to experience in one’s bones the true time scale of stock market patterns.

We’re in a secular bear market.  In this usage, “secular” means “long term.”  Over the past 100 years, the average secular bear market has lasted about 13 years or so.  This secular bear began in 2000, or, arguably, 2001.  The current state of devastation for the global financial system does not bode well for a shorter-than-average duration of this secular bear.  One ought to expect the long-term negative stock market conditions to persist for another 5 to 10 years.

Now, from 2003 to 2008, we experienced a CYCLICAL bull market, still within the context of the long-term bear market.  This cyclical bull market was of extraordinarily long duration.  A more typical duration for a cyclical bull move during a bear market is 1 to 2 years.

So, now we have clearly entered a cyclical bear move.  How long will it last?  Again, the historically typical duration is in the range 1 to 2 years.

Here’s one thing I’m reasonably confident of:  we won’t be entering a cyclical bull until there is at least talk of the Fed boosting short term interest rates.

I’ve said many times that Japan’s horrible experience beginning in the 90s is a good analogue for our current situation.  Japan’s central bank cut its rates to zero and kept them there until pretty recently.  Could we see a decade of economic contraction?  I really don’t think it will last that long, but I do think we’re in for several years of very tough sledding.

So, we may have seen the bottom.  But, we may stay here for several years.  This is not a buying opportunity.

The bear market move from top to recent low was about 40%.  I think there’s a very good chance the final move from top to bottom will be more than 50%.

Here’s another set of signs to watch for, to tell you when we’ve reached the bottom:

  • when everyone knows that only a fool buys stocks
  • when Jim Cramer is off the air
  • when Business Week’s cover proclaims the death of the stock market
  • when the FedGov passes legislation banning the investing of pension and retirement funds in the stock market

I like this last one particularly.  Recently, the FedGov passed legislation REQUIRING 401k administrators to invest new contributions in the stock market for participants who did not specify an investment choice and who were about 50 years old or younger.

The key right now is not so much how to make money with your savings.  The key is not to lose your savings

Ugly Economy Part Quatorze

I have never been much of a trader, but then, i have never been one to buy and hold precious metals, either. I guess now everything you thought you knew is wrong.

Trichet has so far resisted mightily the pressure on him to cut rates. He eventually is going to succumb. When he does, something dramatic is going to happen.

The dollar will rally. US equities will rally along with the dollar. The prices of the metals may fall initially, but then they should go to the moon. I don’t see any room for US debt to rally, but in this crazy planet maybe it will.

So, grasshoppers, wait patiently, and then strike!

Yes, I know, I have leaped ahead somewhat in my parts. Deal with it. Apologies to Bono.

Ugly Economy Part Twa…

A Mr. Richard Fader of Ft. Lee, New Jersey writes, “Enrico Hale, you are always bashing the dollar and America. If you love Europe and Japan so much, why don’t you marry them?” I take Mr. Fader’s point: while I don’t know of a way to marry a continent, or a collection of overpopulated volcanic islands, why don’t I invest in Europe or Japan? Why don’t I just move there? Why don’t I hold my assets in their currencies?

Believe me, I’ve thought about it. I lifted my boycott of France after the rejection by the French people of surrender monkey mentality, which was heralded by the election of Sarkozy (whom I would like to hereby nominate for US President).

London is a very cool city. England as a whole is quite civilized. There is some excellent scenery in France, and lord knows they know their way around a butter sauce and a bunch of fermented grapes. I have never been to Prague. The whole Scandinavian region is very attractive, especially Denmark.

Alas, it turns out that Europe is headed for the same problems we are experiencing. Of course, the euro and all other European currencies are fiat currencies. Europe is borrowing its butt off, just as we are. Europe has a housing / real estate / mortgage crisis as bad as ours, and in some areas, an even worse crisis, which I know is hard to conceive. I listened recently to this extremely disturbing and depressing Economist podcast which catalogs the woes Europe is experiencing, and which are about to explode. The collapse of Northern Rock was just an appetizer. The SocGen debacle was really unrelated to the core problems, but certainly doesn’t help matters. I look for the outright failure of some pretty big banks in Europe in the next six months. My top pick for the kickoff is Banco Santander, but I would give three to one odds that the next one to go is a Spanish bank.

So far, the European Central Bank has held firm against cutting its equivalent of the discount rate (and I would hereby like to nominate Jean-Claude Trichet for Chairman of the US Federal Reserve), but it is sadly, lamentably inevitable that the ECB will follow the Fed down to zero. The Bank of England has already commenced cutting.

I don’t have solid data at hand regarding M3 growth in Europe. I have been assured, however, by people who ought to know that, if anything, M3 growth in Europe exceeds that in the US. I am trying to track down some information on this.

I cannot bear to contemplate Japan right now. See Part Four to come.

By the way, the last word in the title of this post probably ought to be pronounced with a closing platial-dental africative, to properly signify the author’s sentiments about the state of the economy.