How Does the ‘09 Rally Stack Up Against ‘82 Bull Market?
By Barry Ritholtz - November 18th, 2009, 11:30AM
This is one of the things I will be discussing at the Berlin Conference:
Comparing the 1982 Bull Market with the 2009 Rally
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| Rally Comparison | 1982 | 2009 |
| P/E Multiple | 8X | 26X |
| Dividend Yields | 6% | below 2% |
| Book Value | Discount to Book | 2X Premium |
| Monetary Policy | Reducing money growth and inflation rates | Creating money growth and inflation rates |
| Fiscal Policy | Aimed at reducing nondefense spending | Aimed at accelerating nondefense spending |
| Deficits | Peaking and coming down relative to GDP | Surging to 10%+ relative to GDP |
| Global Trade Barriers | Were being torn down | Are being erected |
| Regulation | Deregulation in vogue | Re-regulation rising |
| US Dollar | Plaza Accord bull market | Mercantilist bear market |
| Household Credit | Balance sheets and participation rates expanding | Balance sheets now contracting |
| Tax rates | Income, capital gains and dividend taxes declining | Taxes Rising Now |
Sources: Gluskin Sheff, S&P, Bloomberg
November 18th, 2009 at 11:58 am
A healthy dose of Rosenberg in there. Yes, that just about captures the moment.
One day we’ll look back at this rally and laugh…. well, not all of us. You’ve played it better than most, Bazza.
November 18th, 2009 at 12:04 pm
So, it means we are doing OK?
November 18th, 2009 at 12:12 pm
Some have done very well, it seems: ““The national economy is slowly improving, but Wall Street has recovered much faster than anyone had envisioned,” Mr. DiNapoli said in a statement.”
-I’m speechless.
November 18th, 2009 at 12:29 pm
Where are the interest rates on that chart? They not make the edit?
November 18th, 2009 at 12:30 pm
Man, what a real divide between how things are really going, and how we are being told it’s going. I guess I’ll keep using my own anecdotal evidence, since I’m not going to lie to myself.
At least not about that.
November 18th, 2009 at 12:34 pm
We’re certainly not on the cusp of a new 20-year bull market.
November 18th, 2009 at 12:39 pm
Well, 1st rally good fundamentals/real economy. This rally all pump and manipulation. Me thinks this one ends badly…
November 18th, 2009 at 12:42 pm
Come on Barry….that P/E number is insanely out of whack. Go to their web page and check it out for yourself.
November 18th, 2009 at 1:14 pm
Your chart is a load of…well, I’ll be charitable and call it “nonsense,” since there might be women and children in the audience!
For one thing, Senor Ritholtz, the top tax bracket in 1984 was 50%.
The top tax bracket President Obama is proposing a top tax bracket of 39.8%.
So, Mr. Ritholtz, do you believe Obama’s proposed tax increase is insufficient? After all, Reagan’s high tax regime led to prosperity in the early 1980s, right?
November 18th, 2009 at 1:14 pm
Time to change the ’shorts’, both literally and figuratively!
November 18th, 2009 at 1:22 pm
[...] הבלוג The Big Picture. הטבלה כמובן, מדברת בעד [...]
November 18th, 2009 at 1:23 pm
great points!
November 18th, 2009 at 1:32 pm
“Where are the interest rates on that chart? They not make the edit?”
Correct. The sole reason we are where we are.
November 18th, 2009 at 1:34 pm
Basically no one knows where else to put their depreciating dollars other than into overpriced equities or currency hedges such as gold or other commodities. Unfortunately nearly everyone realizes the unsound valuation in equities and are ready to stampede to the exits. It just remains to be seen what event will trigger the stampede.
November 18th, 2009 at 1:43 pm
BR…I’d go back to blogging, but it seems you’ve always got it covered. As is obvious, the difference between now and 1982 is that by 1982 we had tried every other stupid strategy (from Nixon’s forced abandonment of the gold standard to Burns’ attempt to manufacture jobs by printing money) and were finally willing to take our medicine and cure what ailed us. This time, at least thus far, we refuse to acknowledge that the world has subtly been shifting against us for some time, and seem to believe that more of what got us here is the prescription for what ails us. We’ll eventually figure out otherwise, but I’d give this rally about the same staying power as the ‘73/’74 rally.
November 18th, 2009 at 1:44 pm
Quiz Time:
Obama was quoted in China (hint) as follows:
“It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession,” he said.
Quiz: Who are the “people” President Obama was referring too?
November 18th, 2009 at 1:53 pm
“After all, Reagan’s high tax regime led to prosperity in the early 1980s, right?”
Uh, I think Reagan reduced taxes. It that other guy, the one that today keeps adding to the housing stock, even practically giving them away, when it’s obvious that of all that ails us, an undersupply of housing stock is not one of them. It was that guy’s regime that kept marginal rates near 70%, until Mr. Reagan reduced them shortly after taking office.
You see, F411, that sort of nonsense–inventing facts to fit a particular view of history–is why it’s best to never listen to a political proselytizer.
November 18th, 2009 at 1:56 pm
Current P/E ratio based on actual earnings is north of 140.
November 18th, 2009 at 2:05 pm
The Economic Recovery Tax Act of 1981 (also known as ERTA or the Kemp-Roth Tax Cut) was “A bill to amend the Internal Revenue Code of 1954 to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings, and for other purpose.” Pub.L. 97-34, 95 Stat. 172, enacted August 13, 1981). The Act also reduced marginal income tax rates in the United States by 25% over three years (the top rate falling from 70% to 50% while the bottom rate dropped from 14% to 11%) and indexed the rates for inflation, though the indexing was delayed until 1985. Its sponsors, Representative Jack Kemp and Senator William Roth, had hoped for more significant tax cuts, but settled on this bill after a great debate in Congress. It passed Congress on August 4, 1981 and was signed into law on August 13, 1981 by President Ronald Reagan at his California ranch.
~As I understand BR’s post, it is the direction in which taxes are heading, not their absolute value, that matters. Tax rates of 50%, indexed for inflation after 1985, coming down from a non-indexed confiscatory 70%, is heading in the right direction, and I think the following years of stock gains and economic growth prove the point. The direction can be nowhere but up from here. We are not going to be able to run a structural fiscal deficit (nevermind the monetary one) of $1.5 trillion/year for very long until the creditors will balk. Either spending must decrease or taxes must increase, and the point is that neither is good for stock rallies or economic growth.
November 18th, 2009 at 2:10 pm
WRONG COMPARISON…SHOULD BE 2009 VS 1930
November 18th, 2009 at 2:27 pm
[...] From Barry Ritholtz of the Big Picture: “How Does the 2009 Rally Stack Up with the 1982 Rally?” [...]
November 18th, 2009 at 2:29 pm
This was always a bear market rally and the primary trend remains down.
USD continues it’s bullish warnings too, am expecting a dollar rally.
http://twitter.com/GrandSupercycle
November 18th, 2009 at 2:37 pm
“Where are the interest rates on that chart? They not make the edit?”
A crucial omission. The most logical approach to valuing the market is to calculate future earnings discounted to a current value. High inflation, high interest rates = high discount rate and earnings just a short way out become de minimis.
We may yet get there, but for now the discount rate is rock bottom which justifies including more of the future value of earnings which leads to a higher current PE ratio.
Right or wrong, relevant to current uncertainties or not, its just the maths that investors use to calculate present values.
November 18th, 2009 at 2:37 pm
All this is fine and logical. I respect Rossie a lot. He himself says that “valuation is a poor timing device”. I will add to that and say “logic is a poor timing device”.
I have said this on this board many times. We need an event. Sadly, Meredith did not provide that event. Here is my list of probable events we need to actually happen, as opposed to just remain a hanging sword.
1. Some state, like CA, declaring bankruptcy.
2. Thanksgiving sales disappoint – really really disappoint.
3. Some Eastern European country defaulting on its debt.
4. Earning warnings by more than one blue chip (INTC, GE etc.)
5. A bank in trouble – yet again.
6. Oil futures crashing – we all know about oil being stored in tankers is way up.
Technically, the rally remains strong. Till the fundamentals matter again, I keep making small additions to my shorts.
November 18th, 2009 at 3:32 pm
Idiot: The market has to stay at these levels or higher going through the holiday season. It’s the only bit of “confidence” in the fading Consumer Confidence level. Take the market away and “poof” there goes your holiday shopping season.
Yes, there will be a big dip, it’s inevitable IMO, but now I really can’t see anything happening until after the holidays. Volume in these past few days of euphoria has been steadily dying from weak levels to begin with. Patience. It’ll happen. How ugly will it be is the frightening question.
November 18th, 2009 at 3:32 pm
“…The sole reason we are where we are…”
There are others: US Q3 GDP growth, global growth, dropping DXY, higher productivity, lower tax rates (see Franklin above) bargin PEs and.. that wall of worry… so much gloom and doom from the naysayers – the stridently firm ideologues – is letting the open minded prosper.
I’d add that IMHO, the stimulus has been and will continue to be a success as the extra gov’t spending in the short run will offset the PV of the cost to taxpayers in the long run. Keynesian economics trumps Ricardian equivalence, because the Ricardian man ain’t so rational… just watch Fox News or any little teabagger get together to see.
November 18th, 2009 at 3:38 pm
[...] the 1982 Bull Market with the 2009 Rally Published: Today by GoldSpeculator How Does the ‘09 Rally Stack Up Against ‘82 Bull Market? | The Big Picture [...]
November 18th, 2009 at 3:59 pm
VennData: You forgot to mention, falling housing starts, rising unemployment, falling industrial production, etc., etc. I’ve prospered quite a bit from my open mindedness about the markets running up but I also cashed out recently.
Whenever I hear two phrases repeated constantly, I have to laugh : 1) Markets will keep going up because everyone is waiting for a correction. (Well, we should always wait for a correction and the market will never go down!). 2) Markets are forward looking 6 months ahead (I wish they would have told us that when they were looking ahead in 10/07 at their highs)
Look, there’s been extremely light volume the past few days and nothing will change until after the new year. Market may drift higher or trade sideways until then. After the new year, I’ll evaluate again whether I want to jump on this speeding train again or run fast away.
November 18th, 2009 at 4:24 pm
[...] ritholtz.com [...]
November 18th, 2009 at 4:37 pm
Comparisons while fun to look at are not very enlightening about will happen next year or 20 years out,
especially when not one brother will enventuate a guess about tomorrow’s opening and close and the 500. Even less many will predict it a month, or 6, or 12 out. Ditto the rest of the numbers.
Some parameters above are not yet in play, i.e. Re-regs are being sandbagged and turned into something other than actually putting a stop to 100X leverage,or a peek at the derivatives book of the IBs, and other effective measures to prevent further pyramiding for the sole purpose of wealth gathering to Lloyd Sachs, and Jamie Morgan and their immediate Tribes.
November 18th, 2009 at 5:38 pm
What I like is AMZN’s P/E of 77. Yeah!!!
November 18th, 2009 at 6:15 pm
Neat illustration, except that just about every single one of those metrics (except maybe monetary and the div yield) SUCKS at telling you anything about where the market is headed.
I guess someone could try to argue that this is a cyclical bull instead of a secular one based on the above information, but it doesn’t change the fact that each of those items individually don’t tell you much about market direction…
November 18th, 2009 at 7:43 pm
Quit bothering me with facts. My, don’t the Emporer’s new clothes look FINE?
November 18th, 2009 at 8:30 pm
Harry, you can add this to your list. “One million Workers to Exhaust Unemployment Benefits in January”
Just waiting for a catalyst. That is all. It might come early with a bad economic number or it might take until after the holidays. But I believe it will come.
November 18th, 2009 at 8:33 pm
MBA: Purchase Applications Fall to 12 Year Low
I was surprised that this did not have a greater impact, but then as they say, markets can behave irrationally longer than investors can have money… (or something to that effect)
November 18th, 2009 at 9:28 pm
Wall Streets latest con (Aided and abetted by CNBC) is to use OPERATING earnings to calculate P/E’s. Rosie correctly uses AS REPORTED earnings, which is earnings after all the B/S. Who cares what operating earnings are if they get wiped out by “One time” charges etc. The correct definition of P/E uses the as reported earnings.
If one can believe anything from Wall St. (Which is highly questionnable) earnings projections, based on the accuracy of same over the last 2 years, would not be one of them. Part of the euphoria at present is that we are exceeding earnings projections which were lowered from the same projections coming into 2009 by more than 35%. Not reliable would be too generous a remark.
November 18th, 2009 at 11:13 pm
[...] From Barry Ritholtz of the Big Picture: “How Does the 2009 Rally Stack Up with the 1982 Rally?” [...]
November 19th, 2009 at 1:52 am
Deficits: Peaking and coming down relative to GDP
I guess that is one to describe “reaching modern highs”
Of course, Obama is blowing the doors of Reagan’s deficits,
but they were the highest of the modern era,
just like his 23% of GDP federal budget used to be the modern high.
1977 -2.7
1978 -2.7
1979 -1.6
1980 -2.7
1981 -2.6
1982 -4.0
1983 -6.0
1984 -4.8
1985 -5.1
1986 -5.0
1987 -3.2
1988 -3.1
Since I first laid eyes on it,
this is my iconic view of the Reagan Era:
http://www.brillig.com/debt_clock/inflation.gif
November 19th, 2009 at 10:02 am
[...] Barry Ritzholtz compares the 1982 bull market with the 2009 rally. [...]
November 19th, 2009 at 1:48 pm
1982 – Plaza Accord bull market? Um, the Plaza Accord was in 1985. Well after the recession ended I would assume.
November 20th, 2009 at 8:39 am
[...] Ouch. [...]
November 23rd, 2009 at 5:32 am
[...] Sometimes the plain facts tell the story. Barry Ritholz compares the 2009 rally with the 1982 bull market. [...]