Feeds:
Posts
Comments

Posts Tagged ‘bear market’

My two sons love this book that I would read to them called The Bear Snores On. The story starts out with all of the bear’s friends sneaking into his cave and throwing a party while the bear “snores on.” They would do something outrageous and the author would note and the bear snores on. They would pop popcorn and sing and dance and the bear snores on. Everything is great until the angry bear wakes up.

Well, our bear on Wall Street took a nap back in March 2009. He briefly started to wake up April of this year. Since then, our bear has been in and out of sleep as everyone has been partying in the bear cave.

The unemployment numbers showed continued losses of 95,000 jobs last month…and the bear snores on.

Countries are saber rattling about a currency war…and the bear snores on.

The foreclosure process is in crisis as it has been halted in states all over the country…and the bear snores on.

Middle and lower America continue to face personal financial crisis…and the bear snores on.

The politicians have an agenda so big and it doesn’t include real recovery…and the bear snores on.

The Fed prints money, continues to accumulate at alarming levels, and there is talk about a second stimulus package…and the bear snores on.

Healthcare…and the bear snores on.

Higher tax rates next year…and the bear snores on.

An investor community oblivious to the risks in the structure of our economy system…and the bear snores on.

The problem is that the bear will not hibernate forever. My guess is that he will wake up in a very bad mood considering everything that has happened in his cave. You see, I don’t think that we ever left his bear cave as investors. He has just been asleep. Yes, I know, I have been talking about this risk with nothing materializing and the market continuing to go up. However, keep one thing in mind:

In the book The Bear Snores On, it was a small spark from a fire that woke him up. It wasn’t the big events happening all around him. It wasn’t the loud music or the dancing that woke him up. All it takes is the smallest problem to surface and the house of cards will come tumbling down. As an investor, what is your Plan B?

Advertisements

Read Full Post »

You have probably read that September’s performance, after having a horrid August, was the second best on record for the Dow Jones. The bulls are running hard with this headline as means to spur optimism. They want you and all of your money invested. It is the good times again and we have momentum in our sails. Well, I went back and did a little research. Dating back to 1929, there have only been 4 instances where the stock market has increased greater than 5% in the month of September.

1939 = 13.47% record – occurred during a long-term bear market
2010 = 7.7% – occurred during a long-term bear market
1954 = 7.36%- occurred during a long-term bull market
1973 = 6.7% – occurred during a long-term bear market

1939 and 1973 were both years that were caught up in a long-term bear markets. What is a long-term bear market? It is a long period of time (usually on average of 15 to 20 years) where the market goes either down or nowhere at all. I would suggest that we started a long-term bear market in January 2000.

You can contrast long-term bear markets with a long-term bull market where the market goes up over a long period of time. Said another way, they both represent long period of times where it is either good or bad for investors.

Following those big September months, the following occurred:

September 1939 – The Dow Jones made a top in that month and proceeded to decline -40% into a bottom April 1942.

September 1973 – The Dow Jones saw a top the following October and proceeded to decline -36% to a bottom in December 1974.

The only exception to the rule was in 1954 which was in the middle of a long-term bull market. It continued to increase in value.

With everyone pulling out the party hats, as an investor, you might want to start looking for the valet ticket. The police are on the way and this party might just be getting ready to get busted up.

Read Full Post »

When mutual fund managers are very positive on the market, historically they have kept lower levels of cash on hand in their portfolios. Watching these levels has been a very good predictor of where the stock market might be heading. Consider these statistics that date back to 1961.

Throughout the 60’s, mutual funds held on average 5 to 6% of their portfolios in cash. In some instances, it was as high as 9% to 10%. Cash levels of 4% or lower was a precursor to a market decline. In other words, when mutual fund managers held around 4% of cash, it was a signal that the stock market was about to go into a bear market or at least go through some type of a decline.

The following is from a newsletter I wrote to my clients back in 2007 right before the start of the greatest bear market since the Great Depression.

In 1971, these cash levels went as low as 4% and a -9% decline followed.
In 1972, these cash levels went as low as 3.9% and a -42% decline followed.

Then the cash levels went back up to the average of 8 to 10% again for a very long time until April 98. At that point they went back under 5% for the first time in 21 years. Following that dip down to 4.8% of cash, the market dropped -19%.

Then between 1998 and March 2000, the cash levels stayed in the mid to upper 4% ranges. March 2000, saw the first dip down to 4% cash level in almost 30 years. Of course, that occurred at the top of the great bull market run that led to a -47% decline in the stock market.

In September 2005, we set another record low in cash levels of 3.8%. That led to a mild decline of -5.2%.

In March 2007, we are now at a new record of 3.7%. Does that mean we have a bear market in our future? History would suggest that we have some type of stock market trouble in our near future. The irony is that we are at an all-time in the Dow just like we were in March of 2000.

Fast Forward to Today

So, wonder where we are today? We are currently at a record low level of cash in mutual funds at 3.6%.

NEW BULL MARKETS DON’T START UNTIL CASH LEVELS IN MUTUAL FUNDS ARE CLOSER TO 10%.

That is not an opinion. That is what history has shown. With that said, I would be careful with the risk that you are taking. Things can change very quickly.

Read Full Post »

The jobs number came out on Friday and the market loved it. The Saturday Edition of the Wall Street Journal proclaimed:

Jobs Data Provide Hope

I have always been a little gun-shy about the word “hope” given its link to our commander-in-chief. I honestly think that the markets are a joke sometimes. The market celebrated that 67,000 private-sector jobs were added last month. Of course, the total number of jobs for the month of August showed a loss of 54,000 jobs. Then there is my favorite number of all – the birth/death ratio.

This is the number of jobs that they “estimate” were created or were lost. I wonder what the jobs number looks like if you take out the 115,000 jobs that were created out of thin air? That is how many jobs they added back into the total. Now it wouldn’t be any fun if we didn’t look at how many jobs the Government estimated were created in the leisure and hospitality sector. After all, Americans have so much money to spend on these types of things. These companies must be hiring like crazy. (Please note the sarcasm.)

This past month 23,000 jobs were added to the leisure and hospitality sector. Thus far this year, the birth/death formula has added 421,000 jobs to the numbers. Of those, 78% were in the leisure and hospitality sector. I seriously cannot make this stuff up.

Are you starting to see what a joke Government accounting is? Let’s switch over to what Barron’s wrote this weekend about the jobs numbers and you will see a much more dire situation. From the article:

• All of the employment gains were part-time—full-time employment, according to the Household Survey, plunged 254,000.

• Those working part-time did so pretty much because they had no choice, and their numbers surged by 331,000—the biggest increase in six months.

• Of the 67,000 rise in private-sector jobs, 10,000 reflected returning construction workers who had been on strike.

• The 27,000 shrinkage in manufacturing slots and flat total goods-producing employment are hardly evidence of a vibrant economy.

I don’t need to tell you that this is a serious problem that isn’t getting the attention of the truth. It is just a bunch of politicians crunching numbers to create the fantasy and illusion that serves them best.

Needless to say, risk is very high in the markets. This is especially the case as we enter into the Bear’s favorite month of September.

Read Full Post »

What is that sound that investors heard on Friday? It is kind of faint. Oh it is the Federal Reserve Board Chairman Ben Bernanke screaming as loud as he can between that rock and a hard place. I am starting to find that this is all one big joke…that is this thing called investing.

Let’s back track for a moment. Things were as bad a few weeks ago as they are today when Ben Bernanke had his chance to rescue the market by stating the Federal Reserve Board would intervene following the Federal Reserve Board meeting. He should have known that his silence would be deafening and the market would react negatively. Well, guess what, the market did react quite negatively.

The market or drug addict was upset at not receiving assurance that the dealer was going to come through with some more stimulus or drugs. Then Bernanke sees what a tough time the market is having and at his speech at Jackson Hole last Friday he states that he has a lot of actions that they can pull out of the bag to help the economy.

In other words, he didn’t say the right things then so now he is telling the market what it wants to hear. Wall Street, who really wants to drink the kool-aid, puts in an impressive rally on Friday because Big Ben says he is going to save the day. “Don’t worry (wink, wink) I got this one,” says the Fed Chief.

Let’s take a look at what is really going on here. Further actions taken by the Federal Reserve Board will result in one of two scenarios. They wll either add another band-aid to the festering wound they call the economy or they will fix the economy.

For all of those who are bullish on Bernanke, you might want to consider something. They have already pulled out all of the stops and it didn’t work. Further, since the normal routine chemo didn’t kill the cancer we call the debt crisis, then they are just left to try experimental drugs.

The probabilities of them fixing the problem are so very low. This is a sign of desperation. Bernanke is like everyone else in Washington. Just tell them what they want to hear and keep back pedalling and hope that no one realizes that there are no good options with the exception of one.

Let the economy fix itself. Let bad investments go bad. Take it off life support and let it fight through the pain and recover on its own. As we can continue to push that reality off into the future, we are just making the problem worse.

Market Outlook

On the one hand, the contrarian in me doesn’t like the fact that everyone is so negative at the same time. That is typically a contrarian indicator. When everyone thinks that everything is either good or bad, things are about to change and go the other way. That is typically how it goes. On the other hand, maybe things are just this bad and it has never been so obvious. Monitor risk because I believe the probability is high that we did indeed start part III of the bear market back in April.

Read Full Post »

A recent article in the Dallas Morning News states that we just don’t have anything to worry about going forward regarding a “double dip” recession.  A double dip recession is one where you go through one recession, the recession concludes, and then it comes back again.  Of course, that would mean that the stock market would come tumbling down again as well.

September 14, 2009 edition

“I can now report that it’s time to lift up your melancholy spirits and go find something else to worry about.  Double-dip recessions are very rare events.”

“Since WWII, there are really no examples-except 1980-82….”

The writer also points out that, “you would think a 50% upside prance in the stock market would be met with some measure of confidence rather than such an undercurrent of distrust.”

The biggest mistake that the media is making in the reporting of this recession is comparing it to normal recessions and normal cycles.  The writer would need to go back further than 70 years to take a look at the full length of the Great Depression to get a better comparison. No, I don’t think that we are spiraling into a depression.  I do think that in the least a double dip recession is a high probability. 

People are distrustful regardless of the rise in the stock market.  There is rampant unemployment, a foreclosure crisis, and consumers faced with mountains of debt.  That is not even considering a Congress that is trying to ruin this country through socialistic policies. 

To get a good comparison, you can’t look at post WWII recessions.  It would be a lot like comparing apples to oranges.  This is what makes this situation so dangerous.  Yes, people are distrustful.  At the same time, people are also hopeful.  They are hopeful that the worst is behind us.  If that doesn’t turn out to be the case, confidence will be destroyed and that will be the biggest problem the markets and the economy face.  Today, at least confidence is on life support after a grueling 2008. 

Levels in the Market

I haven’t covered significant levels in the stock market in a long time.  (Click here for a description of what I mean by levels.) For the S&P 500, we are starting down a few key levels that are right in front of us.  It is a range of levels between 1042 and 1062.  The ability for the stock market to get above 1062 and stay there would be a very bullish event. 

Isn’t a rise of 55% in the stock market a bullish event in itself?  Only if the bear market is over.  Thus far, the levels necessary to declare the intermediate trend change from a bear to a bull have not occurred.  It would take the S&P 500 getting over and staying over the level of 1119 for that to occur.

Read Full Post »

Back in March of this year when the stock market found a bottom, I posed a question that I felt would be “the” question for investors. Is this a bear market rally or is this the beginning of a bull market?

I have felt all along that this is nothing more than a bear market rally. A bear market rally is a pause in the bear market where the stock market goes up for a period of time.  Think of it as the bear resting and gathering energy for the next big decline. 

Of course, if it is a new bull market, then the March low of this year was the worst that it will get. 

I believe that we might be getting close to finding out.  Many of the indicators are stating that the moment of truth is here.  If this were a healthy normal market, we would at least see some type of market decline in the course of a new bull market.   I think that we might have already started that process.  If this is a bear market rally, then this decline will morph into something serious.  This should be a big test. 

For this stock market to change from a bear to a bull, the important level for the S&P 500 to reach would be 1121.  The S&P 500 would have to surpass that level and stay above that level.  If that were to occur, the evidence would support a major change for the stock market trend.

The unemployment numbers came out again this past Friday and showed more disturbing news for the economy.  Remember, if they cannot fix unemployment, this economy is going to have a tough time getting going again.  Unfortunately, Obama’s answer to more jobs is Government jobs through the stimulus program.  That is not the type of solution that will solve this problem.   

According to the Government’s “version” of the unemployment report, we lost 216,000 jobs. Of course, that was after they “added” back in 118,000 jobs that they created out of thin air.  As a review, each month the Government “estimates” the number of jobs created each month that they “feel” the Department of Labor misses.  It is such a farce. 

The number of those jobless as well as the overall unemployment rate is much higher than reported.  It is an absolute joke that they continue to report this garbage. 

I wanted to give you a link to an article about Robert Prechter.  He is a well regarded market analyst that has called major tops and bottoms of the market.  He uses a discipline called the Elliot Wave Theory. According to Elliot Wave, we have again hit a major top and it is about to get ugly.  Who knows if this is right or not?  I do know that he has a very strong track record and warrants some attention. 

Read Full Post »

Older Posts »