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Reasons to Be Bearish: Plus Ca Change

Posted By Barry Ritholtz On May 14, 2005 @ 7:27 am In Investing,Markets,Psychology | Comments Disabled

At Daily Speculations [1], Victor Niederhoffer and Laurel Kenner’s site, there’s an interesting excerpt  from Venita Van Caspel’s book "The Power of Money Dynamics [2]."  (The book was so highly spoken of at Vic’s site and cost next to nothing on Amazon that I ordered a copy).

Anyway, the post is titled "Reasons to Be Bearish: Plus Ca Change [1]," by Steve Ellison.

I must admit, I am not sure exactly what the author’s point is. Sure, there’s always something to be Bearish about. On the other hand, some of these reasons were damned good ones, and those years you did better in cash or net short:

1934: Depression
1935: Civil war in Spain
1936: Economy still struggling
1937: Recession
1938: War clouds gather
1939: War in Europe
1940: France falls
1941: Pearl Harbor
1942: Wartime price controls
1943: Industry mobilizes
1944: Consumer goods shortages
1945: Post-war recession predicted
1946: Dow tops 200 – market "too high"
1947: Cold war begins
1948: Berlin blockade
1949: Russia explodes A-bomb
1950: Korean war
1951: Excess profits tax
1952: U.S. seizes steel mills
1953: Russia explodes H-bomb
1954: Dow tops 300 – market "too high"
1955: Eisenhower illness
1956: Suez crisis
1957: Russia launches Sputnik
1958: Recession
1959: Castro seizes power in Cuba
1960: Russians down U-2 plane
1961: Berlin Wall erected
1962: Cuban missile crisis
1963: Kennedy assassinated
1964: Gulf of Tonkin
1965: Civil rights marches

1966: Vietnam war escalates  Dow hits 1,000
1967: Newark race riots
1968: USS Pueblo seized
1969: Money tightens; market falls
1970: Cambodia invaded; war spreads
1971: Wage-price freeze
1972: Largest U.S. trade deficit in history
1973: Energy crisis
1974: Steepest market drop in four decades
1975: Clouded economic prospects
1976: Economic recover slows
1977: Market slumps
1978: Interest rates rise
1979: Oil prices skyrocket
1980: Interest rates at all-time highs
1981: Steep recession begins    Dow still below 1,000

(Van Caspel, 1983, pp. 124-125)

Daily Speculations does not seem to use permalinks, so I am reproducing this here (Hey, Vic or Steve, am I missing the permalinks

Readers of The Big Picture [3] know that I’m no perma-bear; I flip Bullish and Bearish as market conditions dictate. So whne I look at a list such as this, snarky though it may be, some of
those reasons turned out to be damned good ones; Out of
equities or short or in alternative
investments — did better than stocks.

The key point is  to not merely look for the  dark cloud or the silver lining; Rather, its to put those factors into context in order to get a handle on the most likely probability for future market behavior.


Finally, Daily Speculations offers this converse view: Dept. of Doomsday: Word from the Bearish Camp, via Derek Gard

The reality is, during [the past century] there are many long stretches where the market does not offer a positive return. As such, one must be mindful of when to put money into the market.

I recently received the following data to illustrate this point:

Period DJIA Return # Years
AUG 1886 to NOV 1903 -16% 17
SEP 1899 to JUL 1932 -27% 33
JAN 1906 to AUG 1921 -15% 15
NOV 1919 to APR 1942 -22% 23
SEP 1929 to JAN 1950 -50% 21
AUG 1959 to DEC 1974 -17% 15
FEB 1966 to AUG 1982 -23% 16

Since 1903, there have been 26 different years where at some point that year the DJIA was lower than at some point 15 or more years earlier. In other words, 25% of the total number of years falls into this category. If you are an investor who believes 10% returns are a right, then I am afraid you will be disappointed. For many people, 15 years is a bulk of their investing lifetimes. You must make the most of those years, and it is possible stocks are not the place to put your money.

Its all about context . . .


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URL to article: http://www.ritholtz.com/blog/2005/05/reasons-to-be-bearish-plus-ca-change/

URLs in this post:

[1] Daily Speculations: http://www.dailyspeculations.com/

[2] The Power of Money Dynamics: http://www.amazon.com/exec/obidos/ASIN/0835955702/thebigpictu09-20

[3] The Big Picture: http://bigpicture.typepad.com/

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