Here is something I know you don’t want to hear: This bear market isn’t over. I realize that news just knocked me off your
Christmas list. But as I say all the time, I am here to help make you money, not make you feel better.
There have been three terrible stock market bottoms in the last 100 years: 1932, 1974 and 1987. There have been 16 bear markets
over the last 100 years, but those three were worst. The current situation is more like 1932 and 1974 than any other analog
I can find, which is why I will concentrate my comparisons to those cases.
I understand that, by almost anyone else’s metrics, this bear market should be long gone by now. But as you would probably
agree, I don’t do things like everyone else. The herd mentality has proven a little treacherous lately, so it’s best to avoid
it for the time being!
The last bear market, which ended in early 2003, left a lot of unfinished business. The aggressive interest-rate cuts by Alan
Greenspan, the Fed chairman at the time, convinced everyone it was OK to keep borrowing into oblivion (even though the actual
outcome was to send us to oblivion).
Usually, when bear markets end, you can’t find anyone who wants to buy stocks. No one is talking about bargains and catching
the next wave. But 2003 was filled with that kind of chatter, and last month had too much of it as well. When this thing really
ends, you will see nothing but long faces and depressing frowns. That’s what it was like in 1932 and 1974.
The loss for the Dow Jones industrial average from 1929 to 1932 was 88 percent. The Dow lost 49 percent in 1974.
This time around, at last month’s low, the loss was 44 percent. I believe this trip will fall somewhere in between before
it is over.
Why my pessimism? There simply were too many indicators that fell to fresh lows in step with the new lows in the market. The
more likely outcome for a bottom is for the market to hit a new low and indicators to stay at least slightly above recent
The problem for many investors, though, is that the market then will begin a period of base building. This is when emotions
can get really fried. Most people won’t have the patience to sit through this period. 1974 and 1987 both had close retests
within two months of their bottoms. That could certainly happen here. But it could just as well be like 1932, where the selling
was so severe that by the time the 88-percent loss was recorded, there was no need for a retest as there was no one left to
The markets have been experiencing a rally in recent days that so far looks every bit like a bear market rally. From 1929
until 1932, there were seven rallies that took the Dow up more than 20 percent. There were four such rallies of greater than
20 percent in 2001 and 2002. Sharp rallies are more common during bear than bull markets.
This rally has the potential to go on for a while. The Dow conceivably could trade back to 11,000 by the end of the year.
But keep in mind that the evidence continues to strongly suggest this is nothing more than a counter-trend rally in an ongoing
bear market. Defensive measures taken during the rally will most likely still prove to be the best strategy.
With no way at this point of telling how low the Dow can go, protection will not only keep you solvent, but keep you alive.
I will be sure to let you know when the weather clears. But until then, my advice is the same as it’s been the last 14 months:
Please be careful.
Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can
be reached at 203-3365 or at [email protected]