Monday, February 2, 2009

Where in the Bear are We?

Our two guiding principles right now, are:

Anything past settlement date is long term.
Anything long term is terminal.

Even when we come out of the cyclical bear we will still be in a secular bear market (i.e. the red bars)**. From Crestmont Research via The Big Picture:
Dow Chart with P/E, 105 Years
click for larger chart


Source: Crestmont Research
One etymology of the word speculation:
c.1374, "contemplation, consideration," from O.Fr. speculation, from L.L. speculationem (nom. speculatio) "contemplation, observation," from L. speculatus, pp. of speculari "observe," from specere "to look at, view" (see scope (1)). Disparaging sense of "mere conjecture" is recorded from 1575. Meaning "buying and selling in search of profit from rise and fall of market value" is recorded from 1774; short form spec is attested from 1794. Speculator in the financial sense is first recorded 1778. Speculate is a 1599 back-formation.
That is not the etymology grandmother taught me. Hers had to do with Italian merchants keeping watchtowers manned to spot sails over the horizon, enabling those who could see furthest to sell off inventory before goods-ladened ships made harbor and crashed the market. More like this etymology at Wictionary:
From Latin speculātus, past participle of speculor (look out), from specula (watchtower), from specio (look at)
Either way, the current market does not lend itself to either contemplation or seeing over the horizon.

We can however look back and this update of dShorts "Four Bad Bears" chart does that, adding the recovery charts with turning points.

From dShort via Calculated Risk:

Stock Market Crashes
...Click on graph for [larger] updated image in new window.

This graph is from Doug Short of (financial planner): "Four Bad Bears". There is much more at the site.

Doug has added the market recoveries (light red and green) for the 1970s and early 2000s bear markets.

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.
**From Investing the Middle Way (2006):

Source: Profutures, click to enlarge