Sunday, June 28, 2009

Chart Of The Day "Depression-Era Bear Market Rallies"

You can read my take on the current rally here.....

Meine Einschätzung zur aktuellen Marktlage kann man hier nachlesen.....

via Chart Of The Day
Many investors continue to look to the early 1930s for some insight into the current economic/stock market environment. While there are significant differences (global economy, credit default swaps, TARP, FDIC, etc.) between the current environment and that what occurred in the early 1930s, there are also many similarities (bank failures, bankruptcies, severe market declines, etc.). For some perspective on the current stock market rally that began on March 9th, today's chart illustrates duration (calendar days) and magnitude (percent gain) of all significant Dow rallies that occurred during the 1929-1932 bear market (solid blue dots).

For example, the bear market rally that began in November 1929 lasted 155 calendar days and resulted in a gain of 48%. As today's chart illustrates, the current Dow rally (hollow blue dot labeled you are here) is above average in both duration and magnitude relative to the average 1929-1932 bear market rally (hollow red dot).

Compared to the current rally, only one 1929-1932 bear market rally was greater in both magnitude and duration and that was the first 1929-1932 bear market rally that began in November 1929.
> Make sure you also read A Tale of Two Depressions & Mega-Bear Quartet for another excellent comparison......

> Für einen weiteren erstklassigen Vergleich der aktuellen Lage mit der um 1930 herum bitte unbedingt A Tale of Two Depressions & Mega-Bear Quartet die Aufmerksamkeit schenken.

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Blogger jmf said...

Secular Bear Markets and the Volatility of Inflation W. Hester

It's important to note that during the current secular bear market, the volatility of inflation has mostly been well contained. The cyclical bear market of 2000-2003 – although aggravated by the recession of 2001 – was mostly about valuation adjustment. Stocks moved from spectacular levels of overvaluation to moderate overvaluation, and at the recent lows, to slight undervaluation. Valuations going forward may show their typical sensitivity to economic uncertainty, and for this reason, the change in the slope of the volatility of inflation over the last two years is troublesome. The level of inflation volatility is still low, relative to the peaks reached during prior secular bear markets. If the level of inflation volatility continues to increase, it will become more difficult to argue that the secular bear market has come to an end.

The graphs above show that the secular bear markets of last century shared three characteristics. They each lasted for more than 15 years, they each ended at extremely attractive levels of valuation (generally about 7-9 times trailing 10-year earnings), and , and they each endured many years of growing volatility in output and inflation, which eventually created the mindset for investors to price stocks at attractive levels of valuation. The current secular bear market can claim none of these characteristics yet. Any increase in economic volatility during Great Unwinding of the next few years will be crucial in determining the outcome for stocks.

12:09 AM  

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