History suggests that we will not see a lasting bull until 2012…but one more bear market rally may provide an escape hatch for those who are caught with too many depressed shares. These tactics begin by understanding where the US economy and equity markets are in relation to thirty year cycles that seem to dominate the flow of mankind’s industrial productivity.
These cycles are not economic cycles. They are cycles of human interaction, technology and productivity that drive the economy and hence the stock market. These cycles are intricately connected with new waves of productivity that grow from some great human platform of combat. Struggles for survival in the Civil War, WWI, WWII and the Cold War (WWIII) super charged inventiveness that created new forms of productivity…the steam engine, the internal combustion engine, production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and internet, etc.
Each new invention helped win a war. Then shifting the technology to domestic use after the war created a boom.
Each boom led to excess.
Each excess led to a correction…and viola here we are…in a correction again…at the correct time! This downturn started almost exactly (1998), 16 years after the last boom began (1982)…which began after the last great human struggle called the Cold War.
This correction like its predecessors has enjoyed a number of bear market rallies. You can see this quite clearly, in the graph below, how each upward cycle rises after a war (postwar boom) and how the market then crashes before the next upcoming war.
We have been viewing this process via this chart at our site since it began and we can observe how the last bear market recovery ended around December 2007 in this update from yahoo.finance on Wednesday December 3, 2008.
The yahoo chart looks a little different because it is not dollar adjusted, but we can see a bear market pattern, beginning in 1998, similar to one that began in the 1920s and ran though the 1930s into the 1940s.
We see another bear from the mid 1960s that ran through through the 1970s in the early 1980s. The last bull market began in 1982 so it is significant when we see newspaper headlines like USA Today’s December 3, 2008 headline, Auto Sales Fall to 1982 Level. If car sales…stock market levels and economic signs are at their lowest level since the early 1980s, history suggests that the end of the current correction is heading our way….but not quite here yet.
This is why the portion of the Dow graph from 1920 to 1940 is of special interest to me. I see that the sharp 1929 contraction was too sharp. The real correct correction took place from 1929 to 1942 with a strong, last bear market rally from 1932 through 1936.
Everything about this 30 year theory suggests that the bear market will not end until about 2012…and we need a serious human struggle and new technology before we see the next boom. Yet this same theory also suggests one last bear rally which may be a savior for baby boomers who would like to see their pensions and savings recover a bit before they retire.
The current bear trend began in 1998. The 2005 to 2007 bear market rally led many investors astray. We are now in a late 1920s style market slide.
This has all been pretty predictable…which is why beginning August 2007 this site began recommending a reduction in equities and debt.
In September 2007, this site listed four important facts that affect most investors:
#1: They care too much about day to day volatility.
#2: They care too little about strategy.
#3: The short term process of buying and selling takes too much time.
#4: This short term process leaves too little time to analyze and forecast. We added seven suggestion then about of what to do when there is a market crisis.
#1: Turn on the auto pilot and normally add to your position.
#2: Do not panic.
#3: Do not let feelings influence you too much.
#4: Add some restructuring stories to your portfolio.
#5: Know that a period of high returns will be followed by a period of low returns…and vice versa.
#6: Do not underexpose yourself for the long term.
#7: Risk is your friend or alibi for expecting higher returns. Take risk in good value!
The market outlook at this site then (Sept 2007) was:
#1: Expect moderately higher stock markets at the end of 2007.
#2: Earnings growth will slow further.
#3: Watch out for core inflation and GDP growth. Dramatically lower growth with high inflation is the signal to watch for.
This could create a recession, the worst enemy for equities. We have that recession now. Hopefully you have been following these ideas. If so, you have been hurt less than most and now we should be thinking hard about a reentry into markets. There are some stunning values developing especially if we engage three bear market rally tactics now.
Bear Market Rally Tactic #1: Realize that some blue chip equities in old industries may see some sharp immediate gains…but are not the wave of the future. If you hold such shares…when they recover…take your profit if the shares begin to be sold at an unreasonable value.
For example, General Motors was a Blue Chip that spiked in the late 1970s bear market rally. The internal combustion engine was a productivity technology that came out of WWI. Selling GM in the $40 range in the late 70s was the smartest thing a person could have done. From then forward, if you take the dollar’s fall and inflation into account, these shares have been a bad value and poor investment.
The Blue Chips that could peak in this rally are WWII era firms..plastics…telecommunications…TV…computer (not internet)…fertilizers and such.
Dump them if you get a decent price.
Boomers especially will want to use such timing. If you have to sell shares to for liquidity, sell these Blue Chips in old industries that are not likely to have a bright future ever again.
Boomers, hold your new era investments that have a bold future and can still rise a lot to provide your income later when you are in your 80s and 90s and 100s!
Bear Market Rally Tactic #2: Watch for the next war or struggle and the technology that will emerge. The nature of the battle will have an impact on what technology might emerge. Last year I thought that the war could be in Iran. See why at WWIV
There are other options. For example a December 2, 2008 CNN article said:
Terrorists are likely to use a weapon of mass destruction somewhere in the world in the next five years, a blue-ribbon panel assembled by Congress has concluded. They are more likely to use a biological weapon than a nuclear one — and the results could be devastating, the chairman of the commission told CNN. “The consequences of a biological attack are almost beyond comprehension. It would be 9/11 times 10 or a hundred in terms of the number of people who would be killed,” former Sen. Bob Graham said. He cited the flu virus that killed millions of people in 1918 as an example. “Today it is still in the laboratory, but if it should get out and into the hands of scientists who knew how to use it for a violent purpose, we could have multiple times the 40 million people who were killed 100 years ago,” he said. Graham warned that such measures would be costly, but were necessary. “The leadership of this country and the world will have to decide how much of a priority … they place on avoiding the worst weapons in the world getting in the hands of the worst people in the world,” he said. “It is not going to be cheap. It is not going to be accomplished without some sacrifices. It won’t be accomplished without putting this issue ahead of some other competing national and international goals. But I think our safety and security depend upon doing so,” he added. It cited testimony before the commission from former Sen. Sam Nunn, who said that the “risk of a nuclear weapon being used today is growing, not receding.” The report recommends a range of measures, including increased security and awareness at biological research labs and strengthening international treaties against the spread of biological and nuclear weapons. “Many biological pathogens and nuclear materials around the world are poorly secured — and thus vulnerable to theft by those who would put these materials to harmful use, or would sell them on the black market to potential terrorists,” the report warned. The commission expressed particular concern about the nuclear programs of Iran and North Korea, and about Pakistan, which it described as “the intersection of nuclear weapons and terrorism. While observing that Pakistan is a U.S. ally, the report said, “the next terrorist attack against the United States is likely to originate from within the Federally Administered Tribal Areas” in Pakistan. The tribal areas lie in northwest Pakistan where the government exerts little control; the United States says it is a haven for militants from both Pakistan and neighboring Afghanistan. Congress created the commission to investigate and report on WMD and terrorism in line with a recommendation from the 9/11 Commission, which compiled a report on the September 11, 2001, terrorist attacks on the United States. Commissioners heard testimony from more than 250 experts from around the world over the course of their six-month investigation.
This is what it takes…a struggle where all concepts of return on investment go out the window….a no holds barred struggle that must be won. This type of endeavor breaks molds…urges thinking outside the box and changes the way humanity thinks, lives, works and interacts.
The struggle could be against global warming. This would be good, man against his bad lifestyle habits instead of man versus man. What will that struggle and new technology be?
None of us know for sure since we are all afflicted with that human failing of only being able to see the immediate future and (pretty badly) the past.
Yet being aware and watching for both (the struggle and technology) increases the odds of spotting them early and helping you venture into the next winners…that are the ones that can really grow over the next 10…20 and 30 years.
Bear Market Rally Tactic #3: Treat new era investments as high risk venture investments. Buy a little of several hoping to catch the winner.
In the last era for example, as mentioned, computers were the deal…so perhaps you invested a bit in shares of Data General…one of the first minicomputer firms from the late 1960s that due to a series of missteps in the 1980s, including missing the advance of microcomputers led to its decline and demise.
Plus maybe you invested in a bit of Sperry Univac…still in business as UNISYS CORP but only trading at .47 cents a share. Plus perhaps you purchased a bit of Commodore Business Machines (big in the 80s…bankrupt in the 90s).
And you rounded your diversification by investing in a small company formed by two guys who were writing a program for Ed Robertson and his Altair computer (a first personal computer…in a kit). Roberts said he would buy the program if he could see it running on the Altair but the programmers didn’t actually have the programs written. They immediately set out to write them. It took about six weeks and worked. Those programmers founded a small company in Albuquerque and later moved to the Seattle area. Their names… Bill Gates and Paul Allen. The company…Microsoft. Ahhh.
You may have chosen three losers out of four…but the name of the game in venture investing is the huge run up you get when you select a winner. Hold your winners and sell your losers.
We are in an era that we as investors have never seen before. I began global investing in 1968 and this is the worst correction in those 41 years. This means we have greater opportunity for finding good value then we have had for four decades.
Use the seven suggestions above for investing in a market crisis….especially, take risk in good value! Watch for the bear market rally and use the three bear market rally tactics to take this risk as YOU START LOOKING FOR VALUE NOW.
You can get regular quotes on multi currency shares that could do well in a bear market rally from Jyske Bank and Jyske Global Asset Management.
For more details on this, US investors should contact Thomas Fischer at email@example.com
Non US investors Rene Mathys at firstname.lastname@example.org
Join us at a course in Cotacachi or on Ecuador’s coast this winter.
Take a hike with me in the warm Cotacachi winter’s sun.
Stroll the sunny Ecuador beach this winter.
Jan. 16-21 Ecuador Spanish Course
Jan. 22-23 Imbabura Real Estate Tour
Jan. 24-27 Coastal Real Estate Tour
Join us for great fresh Ecuador seafood!
Feb. 9-11 Beyond Logic
Feb. 13-15 International Business & Investing Made EZ
Feb. 16-17 Imbabura Real Estate Tour
See Ecuador’s incredible scenery.
March 8-9 Imbabura Real Estate Tour
March 10-15 Ecuador Export Expedition
March 16-19 Coastal Real Estate Tour
Share some time with Ecuador’s friendly people.
Better still join us all year! See how to attend our 27 courses, tours, mingos and expeditions in 2009 FREE.