In the Eye of the Storm
"...Where ignorance is bliss, 'tis folly to be wise" -- unknown author
After three decades of analyzing the markets I am forced to accept an irrefutable axiom: the markets like the weather demonstrate immutable cycles. Only frequency and amplitude vary.
The thought leapt to mind as I read the naïve defense of "this time it's different" evaluation of the current financial climate in Wall Street. Its author is a rather youngish Ph.D. who was probably tripping the light-fantastic at her senior prom when Wall Street lost 23% of its value in one single day of October 1987 - the last serious bear market.
Although there has not been a single bear market in the last 12 years (excepting the one in which we are now), Dr. Evelina M. Tainer, Economic Consultant to the Federal Reserve Board (naturally), states with the unabashed certainty of inexperience, "STAY IN STOCKS DESPITE DROP; CHANCES OF RECESSION REMOTE."
YES, chances of a Recession indeed may well be remote, BECAUSE WE ARE HELL-BENT FOR LEATHER RUSHING HEAD-LONG INTO DEPRESSION.
Nonetheless, it not so disturbing the "Doctor" is looking through the wrong end of the binoculars, but eminently more distressing she is blind as a new-borne babe to the dangers lurking in the immutable cyclic aspects of stocks. When read by the uninformed public, her recent statement is very disquieting at best, downright dangerous at worst. She blurted in a recent Internet report: "Something unusual is going on, but unless you plan to retire shortly or have major expenses on the horizon, you should practice patience and stay mostly in stocks."
| What Happened in Previous Bear Markets? | ||
| Bear Market | Total Months | Price Decline |
| 1948-1949 1953 1957 1960 1961-1962 1966 1968-1970 1973-1974 1976-1978 1981-1982 1987 1990 | 8 8 3 10 7 8 18 21 17 16 3 5 | 15.7% 13.8% 20.4% 18.0% 29.2% 26.5% 36.9% 46.3% 28.2% 25.1% 12.0% 15.1% |
| Averages of 12 Periods | 10.3 | 23.9% |
Observations:
- There was a bear market every 3.5 years
- Bear market duration was 10.3 months
- Average decline was nearly 24% from the previous yearend close
Forecast based on an average bear market occurring again:
- Bear market well over due since last was eight years ago
- Bear market started in July 1998 should last until about June 1999
- 1999 bear low could reach approximately a DOW 6000
HOWEVER, this analyst fears we are all in-store for a MAJOR BEAR MARKET based upon the extreme excess valuations reached earlier this year. Specifically: a S&P PER of 30, dividend yield approaching a mere 1%, and the insane market to book of 7:1 -- vis-a-vis only 3:1 in 1929.
Furthermore, we must all remember it took 25 long grueling years to breakeven from the Great Crash of 1929.
The web location of the article by Dr. Evelina M. Tainer, Economic Consultant to the Federal Reserve Board (naturally), is:
http://www.economeister.com/intellig.htmAs you read it, keep in the forefront of your mind the market's immutable cyclic nature - and especially the bear market statistics. Then, if you feel financially immortal, by all means please be my guest. However, if you do not want to challenge the Gods of Averages and Cycles, then reign in your long-horns and invest in numerous forms of gold investments - with some ready cash for those torrentially rainy days I see on the not too distant horizon. Like a tropical hurricane we can track its relentless movement, but before we know it, we will be in the midst of the eye of the storm… then it's far too late.
The time to accumulate gold investments is during the calm that precedes the storm. NOW! Forgive the corny truism, but:
He who hesitates is lost.
vronsky
19 October 1998
Copyright © 1997 - 1999 vronsky and westerman