Is this the real thing, or just another Bear Market rally? So far, we’ve had 4 runs of about 20% each.
Here are 3 things to keep in mind:

1) Follow the Playbook: The smart investor’s playbook is very different in bear markets than bull markets. In a Bull Market, you buy the dips. Lower prices are an opportunity to buy into equities at cheaper valuations. Most sales are disappointing, as prices eventually go higher. Buy & hold is the simplest, most cost effective investment strategy.

Bear markets call for a very different set of plays: You sell the rallies; higher prices are opportunities to sell equities at premium valuations. Most buys are disappointing, as prices eventually go lower. Buy & hold is a losing strategy – trading what the market presents to you is the best risk management strategy.

The goal during bull markets is to grow your capital; the goal during bear markets is to protect your capital.

2) Beware the ‘Conspiracy of Optimists’: In the run up to the top of the bull market (October 2007), there is an overly positive view of the world, a misconception amongst the broader populace as to what is actually happening. Warning signs are ignored as foolish memes are promulgated.

Recall these absurd rationales:

• Damage from Subprime mortgages was “contained”
• The US economic slowdown would “decouple” from the rest of the world;
• The conundrum of ultralow interest rates were the result of a “excess savings”

All three of these proved false. And, to the astute investor, these all contained warnings of the coming investment storm. We are currently hearing similar foolishness from the same perennial cheerleaders. (See the “Green Shoots” from a recent NYT debate).

Four recent economic data points (ISM data, New Home Sales, Existing Home Sales, and Non Farm Payroll) were all spun by Wall Street as if they were positive; if you dug beneath the headlines to review the actual data, they were all terrible.

Understand the difference between an economy that is improving versus one that “getting worse more slowly.” We are experiencing the latter.

3) Buying the very bottom isn’t your goal: This often surprises people – they think they should try to buy at the bottom and sell at the top. The problem with this approach is that we don’t know for sure when it’s the bottom or top until after the fact. And even if you nail the low, you may not make any money.

Here’s an example: In 1966, the Dow first kissed 1,000. It did not get over 1000 on a permanent basis until 16 years later in 1982.

But if you managed to catch the exact low in December 1974, well, then, you better have had a strong stomach – the volatility was brutal. That low was followed by a 75% rally, a 27% sell off, a 38% rally and a 24% sell off. But those are nominal numbers. Adjust the returns for inflation, and you actually lost about 75% of your money in real terms. (No thanks!)

Instead, consider as your goal maximizing your returns on a risk adjusted basis. This means being more conservative with your investments when risk levels are higher, and more aggressive when they are lower. For many investors, dollar cost averaging into broad index funds works well. It is efficient and cost effective. If you want to be a bit aggressive, you can increase your contributions once the markets fall 30% or (like now) 50%. The time to throttle back a bit? After a 4 -7 year bull market run.

Category: Investing

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.

55 Responses to “Bear Market Rally ?”

  1. globaleyes says:

    My Crystall Ball remains cloudy but markets go to extremes meaning this market needs a minus 1000 point day to clear out the suckers and set the fllor for a new bull.

  2. CaptiousNut says:

    The past several weeks makes no sense to me. Mostly because the March sell-off was orderly and gradual. There was no panic. The actual squeezing didn’t happen until much later in the rally as traders shorted the bounce. BAC’s short interest is still around a nothing 2% – yet it’s rallied from 2.53 to 9.00. I remain heavily short and perplexed.

  3. snapshot says:

    So what does someone (in my 60′s) with modest means do now if they pulled out of the mutual fund portion of their account and stuck the money in the MM account? I thought about a move back – then chickened out. Just stay there and wait, wait, wait????? I plan to work about five more years.

    RE: Being a chicken. I watched Louise Yamada with her 6,000/600 call about then. She also said “I’d rather be out of the market wishing I was in than in the market wishing I was out.” That is apparently how I feel.

  4. call me ahab says:

    I am more nervous now than I ever was about investing- the USG on a pretty much continual basis has been juicing the market- hard to gauge how they will effect an investment once made (short term anyway) because they are constantly manipulating what information is being presented- especially by the banks who are no doubt getting money from all angles (behind the scenes as well as through direct government infusions) to present the best case to the buying public- I do not think the banks are legitimately profitable except for government aid and artificially low rates- how long this can last I have no idea but I cannot make an informed trading decision with all the “silly chatter” obscuring the “real picture”.

  5. Bruce in Tn says:

    Barry,

    Thanks for the post…I continue to be completely out of the market, and have no anxiety that I am missing something…

    I think this won’t be over anytime soon, and it worries me that most don’t realize how much this massive increase in spending will hurt us over time…I keep reading people writing “we are not Japan”…I suppose we will see if that is so or not. My opinion is that we are.

    http://www.bloomberg.com/apps/news?pid=20601080&sid=avPPeCPpuXr4&refer=asia

    Aso’s Stimulus Plan May Spur Economy at ‘Massive’ Future Cost

  6. snapshot says:

    http://zerohedge.blogspot.com/2009/04/imminent-disinformation-schism.html

    “The Imminent Disinformation Schism”

    “There will come a point where this schism reaches a boiling point, in the meantime, the paradox is that so many of the taxpayers are also investors, who are caught in the tug of war with themselves on what the proper response to the crisis should be: happy as a result of bear market rallies, or sad when they put the facts into perspective.”

    Excellent read

  7. Bruce in Tn says:

    And one other thing about this before I go back to my taxes…this thing is way simpler than socialists are making it out to be..

    What would you do if this were your family finances?

    Short answer, you wouldn’t increase spending massively…you’d cut expenses and regroup…

    “Yeah, but jobs, etc. would melt away even faster”

    Don’t believe it, and you are back end loading this thing so that we never get out of the hole..we are on track for a 2.2 trillion (at a minimum) deficit over the next twelve months, and states and municipalities are INCREASING TAXES…

    Good luck with the new bull market thingy…

  8. Bruce in Tn says:

    @Snapshot:

    Read that yesterday, and it was very much worth the time.

  9. dead hobo says:

    I visited an outlet mall yesterday. It is located in a moderately affluent area. There were no crowds although shoppers were present. Most telling was an abundance of much larger than average sales. Discounts could be taken on large discounts. A couple of chain stores were closing out. It was NOT a positive sign. I was somewhat surprised because malls in January, Feb, and March appeared busier than I expected to see and there were far fewer extreme sales then. The weather was good. Taken as a whole, it was not a good sign. People are hunkering down again.

    The new media mythology of the stock market being a leading indicator is another example of the same incompetence of recent past economic reports. People buy stocks when good news impels them to buy stocks. There must be a tipping point of good news over bad news for any market rally to be sustainable. This is not the case today.

    Regarding the media, I have YET TO HEAR ONE REGULAR PUNDIT OR REPORTER, NOT AN OCCASIONAL INTERVIEWEE, SAY “A LITTLE CAUTION WOULD BE PRUDENT IF YOU WANT TO JUMP BACK INTO STOCKS”. These people have an almost criminal spiel that implies all bad news will go away if we just ignore the reasons for it. None will be held to task, I’m sure, by anyone when the market falls back closer to pre-rally levels in a couple of weeks.

  10. dead hobo says:

    BR noted:

    Is this the real thing, or just another Bear Market rally? So far, we’ve had 4 runs of about 20% each.
    Here are 3 things to keep in mind:

    missing sentences:
    ————————-
    Overall, however, the market has been in decline. Each previous rally was followed by a lower low. It is unknown if that decline is over or if it will continue. Nobody can know that with certainty. Anyone with a common sense background in economics and a familiarity with current events can make an excellent guess.

  11. royrogers says:

    geeze Barry, you keep on alternating bearish posts with bullish posts, all supported by data,
    so what are you today ?? a Bear ??
    you were bullish last week.

  12. Paul Jones says:

    Bank of America quadrupled in a month.

    That’s not merely a bull; that’s a mania.

  13. Terry says:

    Thanks for the reminder. It’s always good to step back for a moment and look at the basics.

    One thing that really worries me about the “bottom” issue is reflected in Doug Short’s (www.dshort.com) charts about the “four bad bears.” One of these is the current market–and it’s on a trajectory quite similar to the one of the Great Depression. Moreover, the other three bad bears continued (or are continuing) for a decade or more. This is remarkably like your comment on the 16 years to push above 1,000 on the DJIA.

    So, in the grand scheme of things, I don’t think we’re going to see a V-shaped market recovery (much less an economic recovery) so I’ll just keep most of my powder dry for awhile in bonds–Treasury & munis.

  14. Todd says:

    @Bruce

    That link is what worries me, the volume the past few weeks didn’t look right. Low on up days, then other days a lot higher than what you would expect. Seeing that it is the Market Makers doing a majority of the volume reminds me of the whole MBS issues, selling and re packaging loans to collect fees. Basic loan swaps to create fees. This is looking like a lot of fee generating action and not really a rally based on fundamentals at all.

    S&P low revisit is a real possibility, it’s just a matter of when. 2 weeks ago I couldn’t tell which way it would continue to go. Now down is the next major move, but the then is still uncertain.

  15. roy, even Trigger will tell you, “it’s a Market of Stocks…”
    ~~

    ahab,

    you should remember that the Universe of Investment options is not singularly domiciled (read: Wall St.)
    ~~

    also, to reiterate: that ZH cat knows where the mice are..
    http://zerohedge.blogspot.com/2009/04/imminent-disinformation-schism.html

  16. dead hobo says:

    About zero hedge:

    Thanks for the links to his blog. His pieces are interesting and I bookmarked the site.

    On the down side, I’m not smart enough to understand everything he writes. I think it’s more how he says it than what he says. I would appreciate it if he added a few sentences for dummies that take his thoughts down a notch so people like me can grow into his thinking.

  17. franklin411 says:

    Barry,
    You left off another danger to be avoided in any kind of market–the Perma-Anything. You talked about the Perma-Bull, but what about the Perma-Bear? Think about all the people who lost a chance to buy into this rally in early March. Think about all the stupid “See you at S+P 150!!!” posts on this blog.

    I remember then there was some hedgie on CNBC saying “We’re not buying this…we’re more short than we ever have been in fund’s history.”

    Hehe! I wonder if that guy’s still in business?

  18. call me ahab says:

    franklin-

    you make some good points however no-one can ever know when a turning point is upon us- yes the market rallied but it could as well have continued down- the USG is constantly putting their mitts on everything- when we will know that it was moot, counter to a stable economy or the correct course of action. That can’t be known and hence I sit and wait- my impression is that the economy is in for rough times despite all the wishful thinking.

  19. Transor Z says:

    COP Chair Elizabeth Warren interviewed in today’s Boston Globe op-ed page:

    http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/04/12/keeping_tabs_on_the_bailout/

  20. zot23 says:

    All this is meaningless. Until we (the little people, the taxpayers, the investors) know what is on the banks’ books, how can we possibly trust in this market? How much toxic waste are they carrying, and are they even solvent? What about the insurers that underlie those banks? Without that transparency and honest accounting, we cannot trust the banks. And if we can’t trust the banks, we can’t depend on sane lending practices (or any lending at all.) So no credit. What the hell stock is a good pick or what technical entry point is solid if the system has no credit to draw from?

    So Bear, Bull, up, down, or sideways – analyzing it is meaningless until the fundamental issues that got us here are addressed. You are just waiting for a bigger and bigger ass whooping until we fix these problems.

  21. some_guy_in_a_cube says:

    Nice job BR, I agree with your points, except that I am not at all a fan of dollar cost averaging.

    Since nobody asked, nobody cares, nobody’s paying attention, and even if anyone was paying attention they wouldn’t listen anyway, here’s how I see it:

    You should be aggressively in the market when a even dart-throwing chimp can make money.
    You should be completely in cash at all other times.
    If you can’t tell the difference, you shouldn’t be in the market at all, ever.

  22. call me ahab says:

    hoffer-

    thanks for the link- thorough analysis- but, do we just disregard, cross out fingers and hope for the best? That is the impression I get from the “rally” aficionados. Also- agreed- there are other investments to be made- however government action and the economy impact the decision.

  23. franklin411 says:

    @ahab,
    Caution is fine. I just can’t stand the “buy gold, ak-47s and canned food…the S+P is going to 150!!!” tinfoil hat crowd. =)

  24. crabsofsteel says:

    TransorZ, thanks for the link to that interview with Elizabeth Warren.

    In reply to zot23, there was a table in last week’s Asset Backed Alert which I found informative. It listed the holdings the eight major banks were willing to disclose of how much they had in RMBS, CMBS, CDOs and unsecuritized loans. The total came to about $275BB. Writedowns to date: about $113BB.

    If the banks were to get any more specific than that, it wouldn’t help you, the little guy. It would, however, help the hedge funds. They have all the tools in place (Bloomberg, Intex, prepayment models, etc.) to value these securities individually. Except, of course, for CDOs which I maintain are almost impossible to value.

  25. dead hobo says:

    franklin411 Said:
    April 12th, 2009 at 11:50 am

    Caution is fine. I just can’t stand the “buy gold, ak-47s and canned food…the S+P is going to 150!!!” tinfoil hat crowd.

    reply:
    —————-
    Nobody is doing anything close to that. The Uninformed Pollyanna is more common at this moment, by far.

  26. DM RTA says:

    so Barry,
    let’s say you’re an intermediate term trader and you see the 20 day ema cross the 50 day ema taking out some downward trendlines in the process, and you see those who would be more knowledgable suggesting this is an intermediate “buy”….but the whole time through the bottom the put call ratio in the index you are looking at is screaming bullish. Is this noise? Is it useful? To me it seems positive but then how do you reconcile the fact that the likely fact that banks are rallying on a change in accounting and not a measurable bottom in earnings? The trend and the psychology say one thing and, the fundies and the larger structural issues in key (financial) sectors say another. How do you read that?

  27. “…do we just disregard, cross out fingers and hope for the best? That is the impression I get from the “rally” aficionados. Also- agreed- there are other investments to be made- however government action and the economy impact the decision…”–ahab

    “do we just disregard, cross out fingers and hope for the best?”

    No, I don’t think one can/should ever do that. along the line of : “When in doubt, Don’t.”

    Though, it is a great instance of why I wish BR would break out some “Intro to Options”-posts..

    LSS: Options are Not “Risky”, Ignorance of them, like Ignorance anywhere found, Is Risky.
    and, yes, do not internalize the, above, statement..

    a different point, one that BR has mentioned, multiple times previous, “Own your own Scoreboard”/”Do what you Are comfortable with..”

    To this: “..Also- agreed- there are other investments to be made- however government action and the economy impact the decision”
    “..government action and the economy impact the decision”

    Of course, “No Man is an Island”, though, with that, the more able you are to survive on a, metaphysical, Island, the clearer your ‘Investment Goals’ will become..

    We live in a Political World, with that, “Geo-political”-Risk is everywhere found.

    LSS: People forget how Complex our current Economy really is, and, with that, overlook that “Complexity breeds Failures”.

    That point, contra to franklin’s snide childishness, is the Fulcrum of the ” Financial Security=Liberty v. Systemic Dependence=Slavery ” teeter-totter..

    at the end of the day it always gets back to Supply and Demand, your perception as to how to match them, and, ultimately, whether you’re comfortable, enough, with the answer, so that you can sleep, safe & sound..for, as we all Know, there is no Wealth w/o Health..

  28. and, this, the QOTD:
    The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. ~Jesse Livermore

    I just noticed. LSS: study what JL had to say for himself, a good understanding of his message will not deliver you far afield..

    “His progress from office boy to Wall Street legend – his trading lessons – his triumphs and disasters – is probably the most fascinating of any of Wall Street’s stories.

    Even today, many stock and commodity traders owe Jesse Livermore a deep debt of gratitude for sharing his trading experiences in Reminiscences of a Stock Operator.

    The techniques Jesse Livermore made public between the 1920s and 1940s have survived him. This follows from the durability of his basic trading rules – rules that made him millions of dollars, provided he remained faithful to them.

    Livermore also lost his entire fortune on more than one occasion, when he ignored his trading rules.”
    http://www.jesse-livermore.com/

    “In Jesse Livermore’s time, the stock market was similar to today’s – it was full of suckers losing their money (and, all too often, other people’s money too).

    Livermore talked frequently about suckers. Several times he admits to actions that lost him a lot of money and which, with hindsight, he realized were the actions of a sucker. (See below.)

    The difference between Livermore and a real sucker, however, was that Livermore mostly admitted his mistakes and learned from them.”
    http://www.jesse-livermore.com/trading-lessons-suckers.html

    “With all thy Getting, Get Understanding.”
    –it’s no wonder that that’s attributed to Solomon..

  29. Super-Anon says:

    Livermore also lost his entire fortune on more than one occasion, when he ignored his trading rules.

    I have a trading account and a retirement account. Even though my trading account is now substantially larger than my retirement account (it didn’t start out that way) the only way I can stay sane is to assume at all times that I’m ultimately going to lose everything in my trading account – it helps me maintain a sense of clarity and emotional control treating this whole thing as a game that’s going to end one day, even though so far I’m getting ahead.

    I tell people that ask me about futures, options, and shorting stocks: if you can’t afford to lose everything and be content with that, you probably shouldn’t do it.

    Or better yet, become a hedge fund manager so you can lose other peoples money instead and still make tons of money.

  30. Super-Anon says:

    BAC’s short interest is still around a nothing 2% – yet it’s rallied from 2.53 to 9.00. I remain heavily short and perplexed.

    Is it possible that most of the short interest is indirect via ETFs?

    I recall a couple of years back market participants saying “it’s not the stocks that are going up, it’s the ETFs that are dragging them up against their will.”

    I wonder if something similar is going on here.

  31. KJ Foehr says:

    Barry’s post is neither bullish nor bearish, IMO. You can read it either way according to your preconceptions. He cites ’66 to ’82 as a relevant example, (as it was the previous secular bear market) and then says now might be a good time to become more aggressive with contributions into the market when we are only 1 ½ years into this secular bear market? I thought we had already concluded months ago that buy and hold was dead for a long time…

    I think it would only be a good time to aggressively dollar cost average in if, 1) we will soon enter a secular bull market, 2) inflation is not going to be a problem post-recession, 3) you are much more nimble than dollar-cost-averaging investors typically are.

    ’73 to ’82 may turn out to be even more relevant going forward as we emerge from this deflationary / disinflationary recession and find ourselves knee-deep in USDs: the raging inflation that is sure to follow in coming years will eat up the gains made from the ’09 lows just as it did for those made from the ’74 lows.

    This is a secular bear market, IMO, and the best place to be post-recession will be hard assets, not paper.

  32. Super-Anon says:

    Aso’s Stimulus Plan May Spur Economy at ‘Massive’ Future Cost

    Yay. I love to see some people using their brains and thinking about the future.

    Refreshing change from the Free Lunch Economists.

    While it’s true that the Japanese citizens can pay the costs of these stimulus packages with their savings, they’re still participating in a debt pyramid scheme – as the public debt of Japan piles up it becomes increasingly unlikely that the government will be able to return the wealth loaned to them by their citizens.

    If the Japanese public ever becomes concerned that the Yen is the biggest ponzi scheme going and they start rapidly spending their savings to avoid a perceived collapse it could lead to a severe inflation shock. That’s the problem with having tons of debt based savings – it could end up being an inflationary powder keg that sits dormant for decades hiding behind mild deflation and then one day:

    BOOM!

  33. drollere says:

    i thought barry’s comments in the ny times were best of the bunch. he manages to scream “cash or treasuries” without ever using the words.

    a shout out to the poster who pointed us to steve keen’s explication (last january) of the differences between “fiat money theory” and “credit money theory”. all the landscape features of debt, banks, credit and the economy fell into place for me.

    i am not a short taker or day trader, retired with a sizeable (but not casually wagered) trust portfolio … so the real question for me is: how should a conservative investor ride out the storm? the recessionary deflation is making it relatively less punitive to hold cash, but cash is dead weight on a portfolio that is supposed to supply a continuous revenue stream with inflation inoculation. where else to put cash now — oil, gold? muni bonds? corporate debt? options and futures are off the table for now. everything seems drenched in risk.

  34. Super-Anon says:

    i thought barry’s comments in the ny times were best of the bunch. he manages to scream “cash or treasuries” without ever using the words.

    Hmmmm…. be careful with longer dated treasuries.

    It’s worth noting that one of the biggest long-term treasury bulls, Gary Shilling, recently decleared an end to the “Bond Rally of a Lifetime” (he called the start of it in the early 80s).

    His advice has been very good to me in the past few years, so I take it very seriously when he says “it’s over”.

  35. http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

    Super-Anon,

    w/this: “If the Japanese public ever becomes concerned that the Yen is the biggest ponzi scheme going and they start rapidly spending their savings to avoid a perceived collapse it could lead to a severe inflation shock. That’s the problem with having tons of debt based savings – it could end up being an inflationary powder keg that sits dormant for decades hiding behind mild deflation and then one day:

    BOOM!
    ~~
    you know that that observation is befitting, not only, the Japanese, yes?
    ~~
    “Our money system is not what we have been led to believe. The creation of money has been “privatized,” or taken over by a private money cartel. Except for coins, all of our money is now created as loans advanced by private banking institutions — including the private Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.

    Not only is virtually the entire money supply created privately by banks, but a mere handful of very big banks is responsible for a massive investment scheme known as “derivatives,” which now tallies in at hundreds of trillions of dollars. The banking system has been contrived so that these big banks always get bailed out by the taxpayers from their risky ventures, but the scheme has reached its mathematical limits. …”
    http://www.webofdebt.com/

  36. Super-Anon says:

    you know that that observation is befitting, not only, the Japanese, yes?

    Well, in the past year or so I have come to believe that the whole point in a government adopting a fiat currency is to engage in ponzi finance at the level of the most basic financial instrument.

    Switching to a fiat currency in my view constitutes a “Declaration of Intent to Default”.

  37. Super-Anon says:

    Switching to a fiat currency in my view constitutes a “Declaration of Intent to Default”.

    BTW if this is accurate then fiat currencies by their very nature are immoral.

    Fiat currencies and inflation are in effect the financial manifestation of immorality.

  38. 10 cc says:

    Mark,

    That’s really the big question, isn’t it? Has the scheme reached its’ mathematical (or political) limits? The attempt to once again socialize the losses was never really in doubt. But I imagine the original creators of the Fed have been looking up from hell and debating among themselves whether this time their contemporaries finally went a step too far or will Ben, Tim and Larry manage to pull it off for them one more time.

  39. Super-Anon says:

    Mark,

    That’s really the big question, isn’t it? Has the scheme reached its’ mathematical (or political) limits? The attempt to once again socialize the losses was never really in doubt. But I imagine the original creators of the Fed have been looking up from hell and debating among themselves whether this time their contemporaries finally went a step too far or will Ben, Tim and Larry manage to pull it off for them one more time.

    If it does end, I don’t it will happen without some kind of extreme conflict or turmoil.

    If one ponzi finance scheme begins to collapse expect proposals of a new even greater global ponzi finance scheme to take its place.

    This kind of concentrated control over wealth is precisely the thing that wars are fought over.

    The evolution of technology and finance has not fundamentally changed human nature – only given it different avenues to express itself.

    As Wall Street has demonstrated recently – we’re still exactly the same sort of creatures we were 100 years ago, 1000 years ago….

  40. 10 cc,

    that’s just it– “Has it?”

    see: “Fiat currencies and inflation are in effect the financial manifestation of immorality.” S-A

    you know, there no two ways about it. It is, just, That Way.

    It is the Ultimate Tort: Fraud, so Universal it skews every perception.

    We can rest, assured, that a Party to this will be Convicted. We can rest, complacent, and it will, surely, be Us. Or, we can wrest, the Truth of the matter, out, into the Open, and let the Jury decide..

    depending which side you’re on, it’s either a benefit, from the Grace of G-d, or a Curse, but, most People–even ‘cained, as many are, can still understand what’s Right.

    and that’s the Matter, Right v. Wrong –and, yes, we All have Subject Matter Jurisdiction, we are All Parties at Standing, and, Forget the ‘Statutes’, the Laws apply.

  41. wally says:

    To me it makes no difference whether is is a ‘bear market rally’ or the ‘real thing’. There is no place I trust to put my money now based on chances of profits moving forward. Even in the event of profits, I doubt that a stockholder would ever see them.
    An example: GS wants to pull in private money to “pay back TARP”. This tells you two things. First, they cannot pay back TARP as they now stand and second, they want out of the TARP restrictions so thay can move back to bonuses and stock options. Why would I, as an investor, want to put money into either of those situations?

  42. wally says:

    “While it’s true that the Japanese citizens can pay the costs of these stimulus packages with their savings, they’re still participating in a debt pyramid scheme…”

    It is a fact not yet appreciated in Japan – or here – that if you are a saver you can still be forced to pay out for the banks and big corporations. This happens when government is allied with those businesses and has the power and will to ring up deficits to help them. This removes your savings through two methods: higher future taxes and inescapable inflation. It is that magic mix of Oligarchs and Cronies that does the damage and we in the US are now as bad as any country in history. We still mostly live middle class lives, so that calms the perception – and the violence – that is the historical response. Obama may clearly realize this (the alleged “pitchforks” comment) but his advisors do not appear to.

  43. Ben says:

    I personally think it is impossible to know whether this is a bear market rally or the bottom has been put in. However, the certainty by most posts here that this is in fact a bear market rally leaves me more inclined to believe we have in fact bottomed. Yes, the economy isn’t in fact improving yet, but if you were to wait for year-over-year growth in the economy, you would clearly miss out on the vast majority of the gains, if history is any judge. I am also struck by everyone being so short based anecdotally on conversations I have with investment professionals and it also seems evident from comments here. It seems to me that with the government intervention totaling up (including all the bailouts and Fed actions) to 100% of GDP (based on James Grant’s math I recently read), people would be more cautious being short when markets are already down over 50%. Anyone with any experience short selling prior to this latest crash should know that this is perhaps one of the most dangerous times to be short and one can really lose a ton of money if you are wrong. Especially if you are short levered entities and wrong. Given so many unprecedented things happening today, it doesn’t seem like being heavily exposed in either direction makes a whole lot of sense. At the same time I am very uneasy holding a lot of cash, as the risks associated with the potential for currency to be debased are also making me squirm. Ultimately, its a tough time to be an investor.

  44. moneyneversleepsblog says:

    @ben

    I agree that only time will tell whether we can label this period as a real rally or another suckers rally. To be honest it doesn’t really matter what you call it, more important is whether you caught it or not and then figuring out a strategy going forward. It was very easy to be negative and expect negative stock returns 12 months ago when most did not but at this point it feels completely uncomfortable to have so many people agreeing on the same thesis…
    http://moneyneversleepsblog.blogspot.com/2009/04/bear-market-rally-thesis-gains.html

  45. WaveCatcher says:

    This WaveCatcher doesn’t attempt to predict market trend, rather I align my capital in accordance with the prevailing market conditions and leverage my model’s statistical edge. Neither 100% long, nor 100% short, there is no need to worry of a catastrophic loss if I am wrong in my expectations of where the market is going next. I am often wrong!

    The model portfolio is currently in a market neutral stance with about 40% of capital in cash. (Up 29% over the past 52 weeks)

    If you are bullish, you love the market’s technical measures of late…
    1) the bounty of 10:1 Up/Down volume days since March 1. Price/Volume (supply/demand) is definitely bullish for the past several weeks.
    2) You will also note that Swenlin’s award winnin Thrust/Trend Model shows an increasing number of stocks showing bullish price behavior, and the general market’s intermediate term trend is now up for the first time in over a year.
    3) Also, fewer new lows each time the market makes a new low showed a bullish divergence in March (although also November).
    4) Finally, the market has held up well and even rallied in the face of bad news.

    If you are bearish, you will focus on the lousy fundamentals…
    1) The suspect volume on rallies.
    2) the expected increase in foreclosures (both residential and commercial RE)
    3) the drunken money creation via the US Treasury and the Fed.
    4) the coming financial tsunami in Europe, emerging markets, etc.
    5) the ongoing D-cycle

  46. dead hobo,

    re: ZH, you go w/: “On the down side, I’m not smart enough to understand everything he writes. I think it’s more how he says it than what he says.”

    As always, if you have Q:’s, Ask.

    from what I’ve seen on those threads, many do, and are not received w/ hostility, in the least.

    past that, one can, always, ask elsewhere..just remember: “Context is Key”.

  47. auden5 says:

    Barry, can you please expand on this post? Your writing is almost always crystal-clear, but I’m afraid I don’t understand this post. You say, “That low was followed by a 75% rally, a 27% sell off, a 38% rally and a 24% sell off.”

    Well, if investors assume the first week of March 2009 was the “low,” then according to your stats, we might be in for a sustained rally. (In fact, that is what appears to be happening right now. ) But then you then say that the actual returns were diluted by inflation, causing investors to lose money.

    According to your numbers, an investor who got in at the low would still be up around 33%. To reach your conclusion, inflation would have to be over 33% during that time period to cause a real loss. How many years are we talking about here? And do you really see that kind of inflation happening in the U.S.? America does not have an enemy country capable of attacking America’s shores to spur the massive war time spending that usually accompanies such inflation and full employment. (Note: I said country, not individuals.) I don’t rule out a Gulf of Tonkin incident, but I also don’t see that happening under Obama’s less neoconservative administration. As such, I don’t see inflation posing a massive threat over the next five to ten years, certainly not in the range of a 33% jump.

  48. drollere says:

    > I agree that only time will tell whether we can label this period as a real rally or another suckers rally.

    clearly, it was a real rally if you got in early and were primed to sell. 20% is a nice month’s work! and nearly all of a market’s annual returns are made off a few dozen trading days; the rest is just churn. finding a bottom is just code for finding a day that you can buy and quit watching the prices every day.

    if you’d like to find a shady place to park your nest egg, then … suckers are not made by buying, but by not holding long enough. or so one theory goes. just throw a dart at the calendar, go all in on that day, and you’re done.

    in those terms: i can’t find a bottom, because i can’t stop watching events unfold — i don’t trust the players and i fear the landscape. and i can’t just hold, because the landscape foretells a long and dreary interval of volatility without trend.

    most of all, i don’t feel we are ever going to get timely disclosure and transparency, and i don’t trust the government to take aggressive action short of a crisis forcing its hand. so no — no bottom for me.

  49. moneyneversleepsblog says:

    To a certain degree it doesn’t matter what you call it, more important is how you played it. The label is not the major issue…

    http://moneyneversleepsblog.blogspot.com/2009/04/is-this-another-bear-market-rally-does.html

  50. yellowfin46 says:

    But if you managed to catch the exact low in December 1974, well, then, you better have had a strong stomach – the volatility was brutal. That low was followed by a 75% rally, a 27% sell off, a 38% rally and a 24% sell off. But those are nominal numbers. Adjust the returns for inflation, and you actually lost about 75% of your money in real terms. (No thanks!)

    I don’t get this math. S&P500 appreciation is about 34% without calculating dividends in this example. CPI inflation from ’74-’82 was around 50%. So if you started with $100,000 and grew to $134,000 plus another $10,000 for dividends, you’ve got $144,000. If inflation robbed you of 50% then you have $72,000 in real terms. That means you lost 28% of your money not 75%.

    That’s still bad but compare it to a T-Bond in 1974 with a 7% coupon. After taxes and inflation, the real loss was far greater.

  51. Robin says:

    One question to the board: why are equities not a good place to be during times of high inflation?

    Theoretically, equity represents a piece of a real asset – just like real estate or commodities.
    Also, theoretically, the average company would probably increase their sales by the inflation amount, but would see their cost go up by the same inflation amount. As a result their profit would go up by the inflation amount. And finally their shareprice – assuming same capital structure and multiple – would go up by that amount. So in the end, I end up in the same place.

    What is the counter argument?

  52. Robin,

    start here: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. ” – John Maynard Keynes, The Economic Consequences of the Peace, (1919), p.236.

    add in ‘Substitution effects’ by end customers..

    and you get a whole new dynamic, one very different from a simple ‘marking-up’ of the Balance Sheet of each and every..

    further, Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.–JMK paraphrasing Lenin..

  53. DL says:

    Robin @ 8:13

    You’re sure to get price/earnings multiple compression during periods of inflation.

    One reason is that money will flow into commodities (and other hard assets).

  54. Trying to time the market bottom is a fools errand. Sure the bear market rally rips offer big moves in a short period of time, but also push back hard if you time it wrong and are playing shorter time periods. Market volatility has increased over the last couple years, and may be here to stay for awhile. Buy and hold is dead, but medium term indexing and upgrading is still working if you keep your eye on a longer time frame in your analysis.