RealMoneyThe latest column is up at, titled Cult of the Bear, Part 2. This is now the second of what has become a 3 parter, outlining the Bear Case for 2006.

Today, I go over the cyclical and technical basis for the markets being vulnerable to a major dislocation this year.

Here’s an excerpt: 

Regardless of how each one ends, every bull market over the past century has been followed by a significant refractory period. As the chart shows, it takes quite a while to recover from a crash. Some of this is due to the destruction of capital. At the end of bull markets, many indutries end up with excess capacity (think optical fiber or telecom.) But do not overlook the large psychological component of the pain incurred by investors. The damage gets repaired when investors finally forget about the pain they suffered — or when a new crop of investors (without scars) finally appears.

Today, market junkies have a new mistress: homes. Their former passion for stocks has been replaced. As we have seen, their equity wounds — plus 46-year low interest rates — has made real estate the new hottie. My guess is that nothing short of a large and sustained move upward (e.g. several quarters) will rekindle their love affair with equities.

How likely is that? Is it possible that an 18-year bull market (1982-2000) could be followed by a two-and-a-half-year bear (March 2000 peak to October 2002 low), then followed by another multidecade (2003-2018) bull? Sure, anything is possible. But as the chart above shows, it would be historically unprecedented.

Regular blog readers have seen snippets of the 4 charts usd in this. The column attempts to pull together the cyclical and technical arguments into a coherent whole . . .


Cult of the Bear, Part 2, 1/9/2006 7:12 AM EST

Category: Investing, Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “New Column: CULT OF THE BEAR, part II”

  1. pjfny says:

    This is very relevent for you p/e discussion:

  2. B says:

    Hey grumpy bear,

    What did the guy from Fifth Third say on your last appearance on Kudlow as he patronizingly heckled you about your prediction for 2006? “We’d need a dollar crisis” He may be clairvoyant.

    Well, I am not a policy genius but I wanted Feldstein named as the successor to Greenspan. I think he would whip the Washington spendaholics back into shape. This post taken from the FT is rather ominous. Can you say currency crisis? If a 30% haircut in the dollar happens, our economy would be crushed. I’m tired of the politicians who talk down the dollar. American companies would be devastated internationally as would our cumulative purchasing power as a nation. And would we maintain the status of the world’s reserve currency? What are the implications?

    Are we on the verge of becoming the next Italy? Devalue our currency every time we have a financial problem? Low odds probability in my estimation but who am I? A little scary.

  3. Tonythetiger says:

    Don’t count on a crash this month!

  4. I’m not

    As the 2006 forecast shows, my expectations for the beginning of the year are hardly what you would call uber-bearish:

    Dow – 11,800
    S&P500 – 1350
    Nasdaq – 2620

  5. TonytheTiger says:

    That comment was not targeted towards you. It was a general comment.

    My market analysis may be different than yours, but I agree we are not done yet.

    Based on the VIX, there is a gap below that has not been satisfied.

    On a previous post, I had mentioned I purchased Jan. call options. Within one week the value went from .25 to 125. In the past, each time this has happened (gain this much value in a short timeframe) the market paused or corrected a bit, then took off (moonshot).

    It would be nice if the NDX corrected back to the 1707 mark, then resumed its trend up. That might happen today.