Bubbles and Manias
Source: Jean-Paul Rodrigue, Dept. of Global Studies & Geography, Hofstra University
Source: The Big Picture
Tag Archives: Cycles
Bubble/Mania Cycle
Fifth-Year U.S. Stock Surge Seen in Precedents
Click to enlarge
Another year or more of gains may lie ahead for U.S. stocks if history is any guide, according to Jeffrey Kleintop, LPL Financial Corp.’s chief market strategist.
The bull market that began in March 2009 is the seventh to last at least four years since World War II, as Kleintop wrote two days ago in a report. Four of the previous rallies ran for five years or more, and the fifth year produced a 22 percent average gain for the Standard & Poor’s 500 Index.
As the CHART OF THE DAY shows, the S&P 500’s ascent has been relatively steep. In the bull market’s first four years, the index rose 129 percent, the second-best performance of the postwar period. The chart depicts the biggest four-year gain, a 138 percent surge that started in August 1982, as well as the smallest, a 58 percent gain beginning in October 1990.
“The current bull market is not likely to be over,” Kleintop wrote. Even so, the Boston-based strategist added that the S&P 500 may be overdue for a drop of 5 percent or more. The index hasn’t fallen that far since a two-month slide ending Nov. 15, and the almost four-month interval is the third-longest since the advance began.
“Pullbacks do not have to be viewed as wicked,” the report said. “Instead, we should cheer them, since they help to sustain the bull market and provide opportunities for investors to put money to work at a discount.”
The S&P 500 has yet to retreat for more than two days in a row this year. Yesterday’s decline of 0.2 percent followed seven consecutive days of gains, which left the index 0.6 percent from a record set on Oct. 9, 2007.
Source:
Bloomberg
Chart of the Day, March 13
David Wilson
dwilson@bloomberg.net
Source: The Big Picture
The Truth About Market Timing
In Mark Hulbert’s Barron’s column, he asks: “So, How Did the Market Timers Do?“:
“Now is a perfect time to ask these questions: With the stock market back to where it stood in October 2007, the last five-and-a-half years constitute an ideal laboratory in which to judge the success of market timing in the real world. Only after a full market cycle can we tell whether a timer can both get out at tops and get in at bottoms . .
The first lesson that emerges from the HFD data may be obvious, but is worth noting: No market timer called the market top in October 2007 and the bottom in March 2009, if by “called” we mean went completely to cash on Oct. 9, 2007, the exact day of the high, and got back 100% into stocks on March 9, 2009, the precise date of the bear market bottom.”
With all do respect to Mark, he’s doing it wrong.
The data overwhelmingly shows that no one is ever going to make a risk assessment that allows them to top tick on the way out going to 100% cash at the highs and bottom tick at the bottom, going all in. Forget the proverbial typing monkeys writing Hamlet; even a million fund managers over a million cycles might not generate one outcome of top and bottom ticking. And if it did, we know it would be purely random. (A fairer test would be getting out within 10-25% of a peak and getting back in within the same parameters at the bottom).
Regardless, that one in a million-million trades misses the point. Individual investors should not market time, but they should be aware of other factors when they make capital commitments.
I prefer to Risk Analysis rather than engage in pure Market Timing.
Rather than making the low probability attempt to market time, here are a few things investors should at least be aware of instead of attempting to jump in and out,
• What is the overall trend in the market — is it rising or falling or going sideways?
• Are Earnings rising or falling?
• Is my asset allocation percentages appropriate for the current secular cycle?
• How are stocks valuations? Measured by both a simple forward P/E and a longer term 10 year (i.e., Shiller CAPE), are stocks cheap or pricey?
• Am I taking advantage of mean reversion to rebalance my holdings based on asset class?
• Are interest rates rising or falling?
• What do the regular 5%, 10% even 20% pullbacks mean to your portfolio?
• Do I understand that my comfort level about market volatility and risk is typically inverse to present opportunities?
Most people are much better off if they simply do two things: Rebalancing their holdings on a regular basis and changing the tilt of their allocations on rare occasions (i.e., 70/30 to 60/40).
Focus on maintaining an intelligent balance of assets, and leave the martket timing to the newsletter writers. When they get it wrong, they lose subscribers. When you get it wrong, it crushes your retirement plans . . .
Source: The Big Picture
Professor Sylla: More Dow Records to Come?
Richard E. Sylla, financial historian and professor of economics at NYU’s Stern School of Business, discusses the likelihood of a series of markets highs, the impact of the Fed’s ability to keep interest rates down, and the tendency for investors to buy high and sell low, in a big interview with WSJ’s Jason Zweig.
10:09
Source: The Big Picture
Investors Should Ignore Politics
Politics matters little to your investment outcomes.
This has been a theme of mine for nearly forever. I discuss this in presentations all the time. It was — literally — my first column for the Washington Post.
And yet the financial press simply cannot get enough of this stuff. They love a good narrative. While these story lines make for good copy, they also make for terrible investing advice.
Consider the market impact of the past Fiscal Cliff (none) and the Sequester (rally mode). Both of these events are relatively minor compared to past historical events of far greater import that also have had negligible impact on markets.
What has the overall effects been on investments of past historical events? Consider the attack on Pearl Harbor, which led the US to entering WW2; the Soviet Union’s launching of Sputnik into space, and starting the cold war arms race. (I can’t forget the Cuban Missile Crisis or the Iraq and Afghanistan Wars). There have been momentous events with U.S. presidents — the assassination of President John F. Kennedy, the resignation of President Nixon, the impeachment of President Clinton — none of which really impacted investment values much.
In none of the above, did the markets react unusually. At most they wobbled a bit, before resuming their prior trend. Even the horrific attacks of 9/11, which saw markets closed for almost a week, had a big selloff, followed by an even bigger snapback rally — followed by markets returning to the prior trend, which was the post-2000 popped tech bubble down slide.
The lesson investors should learn is while these events may transfix us emotionally, they have almost zero impact on corporate revenues, profits and valuations earnings. That is what drives most of your investment results, not what is on C-Span . . .
Source: The Big Picture
Explaining My Position on Secular Bear Markets
I hate seeing myself misquoted, misinterpreted, or just misunderstood. Nuance apparently gets lost on some people, so let me make this as clear as possible:
1. A Secular Bear Market began in March 2000.
2. I DO NOT KNOW IF ITS OVER. It could be, but I suspect it is not. I do think that it is in the process of coming to an end, and that’s why I used the baseball metaphor of in the 7th inning.
Note: “Coming to an end” does not mean over. I erroneously assumed most people would understand what “in the 7th inning” meant — to those folks overseas, an American game of baseball has 9 innings. The 7th inning means its late in the game, but there are still a few innings left to be played.
3. If it has not already ended, then the bear market is entering its 14th year.
4. We don’t have a lot of examples of Secular Bear Markets — see the chart below — but it is a decidedly small sample set of only 4 over the past century.
5. These secular bears have all lasted between 12-22 years.
6. Based upon this small history, even if this bear runs 22 years, we are closer to the end than the beginning.
7. The FOMC policies of QE/ZIRP are the wild cards. I believe we would have had at least one 20-30% correction but for the last 2 QEs. That washout would have been our 1979-81, and it could have helped set the stage for the end of the Secular Bear.
8. Normally, we should be seeing lower P/Es and even lower interest in Equities. However, we once again look at the actions of the Fed as a complicating factor. This makes interpreting where we are in the cycle, a challenge under normal circumstances, that much more difficult.
9. I don’t know how to interpret the secular bear metrics in light of the Fed’s active intervention in the markets. It is a case of first impression.
10. I do not believe the US has followed Japan into a 30 year deflationary period. They are just too dissimilar to the USA — their Keiretsu system is different than our corporate sector, their demographics, their unified, non-diverse culture, their export driven economy, even their risk averse approach to entrepreneurship.
I hope this clarifies things for anyone who may have misinterpreted what I said.
Please leave whatever questions or comments you have below.
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Dow Jones Industrial Average 1900- present (log scale, monthly)
Click for ginormous chart
Source: Monthly Chart Portfolio, Merrill Lynch Market Analysis, November 4, 2011
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Source: The Big Picture
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