Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20
Facebook (FB) AI Mega-trend Tech Stocks Investing 2020 - 10th Feb 20
The US Constitution IS the Crisis - 10th Feb 20
Stock Market Correction Continues - 10th Feb 20
Useful Tips for Becoming a Better Man - 10th Feb 20
Will CoronaVirus Pandemic Trigger a Stocks Bear Market 2020? Part1 - 9th Feb 20
Could Silver Break-out like it did in 2011? - 9th Feb 20
The End of the Global Economy - 9th Feb 20
Fed to Stimulate in Any Crisis; Don’t Let Short-Term Events Bother You - 9th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Thinking Stock Market Cycles Not Endless Trends!

Stock-Markets / Cycles Analysis Sep 10, 2010 - 02:56 PM GMT

By: Sy_Harding

Stock-Markets

Best Financial Markets Analysis ArticleThe favorite forecasting tool of economists and investors is to extend whatever are the current conditions and recent trends in a straight line into the future. I was reminded of that by an article in this week’s Bloomberg Businessweek magazine, which began with the following;


“The U.S. economy remains almost comatose . . . The current slump already ranks as the longest period of sustained weakness since the Great Depression . . . Once-in-a-lifetime dislocations . . .will take years to work out. Among them: the job drought, the debt hangover, the defense-industry contraction, the banking collapse, the real-estate depression, the health-care cost explosion, and the runaway federal deficit.”

The article then discloses that was Time magazine’s analysis of the economy in its September, 1992 issue, when the Dow was at 3,390, and the economy was still struggling to pull out of the 1991 recession.

The S&P 500 then declined another 7% to its mid-October 1992 low, which according to seasonal analysis, was the beginning of the market’s next ‘favorable season’. Stocks then launched into a bull market.

Unfortunately, most investors missed out as they were still disbelieving that a strong economic recovery could soon be underway given those miserable surrounding conditions noted above - and especially with a newly elected Democrat in the White House.

But by 1995, with the market up 50% since 1992, sideline money finally began returning to the market in earnest with investors scrambling to catch up. In 1999, statistics showed that more than half of all the money in the stock market had flowed in just since 1995.

Similarly, we currently have the market muddling along, down 29% from its 2007 bull market peak, and down 9% from its April peak of this year. And, as is the historical pattern, ravaged investors who stayed in the market too long after the 2007-2009 bear market began, became disgusted with the stock market, and have steadily pulled money out of stocks and stock mutual funds since, even through last year’s big rally.

The Investment Company Institute, keeper of the statistics, reports that $40 billion was pulled out of U.S. equity mutual funds in 2009, making a total of $239 billion pulled out over the previous three years, and the outflow has continued this year. There is now an estimated $2.8 trillion in money market funds, while a dramatic $185 billion has flowed into bond mutual funds so far this year.

But when should they get back into the stock market? Can we learn anything by looking back at 1992?

The current similarities to the fall of 1992 are not confined to the similar surrounding economic conditions and fear in the stock market, but also to historical seasonal patterns, and even the political situation.

In November, 1992, a Democratic president was elected for the first time since 1977, succeeding a previously popular Republican president, George Bush Sr. President Bush had become unpopular by re-election time, as a result of the difficulty his administration was having pulling the economy out of the 1991 recession. In another eerie similarity, that recession had been the result of the bursting of a real estate bubble; a serious collapse of the banking system (almost 1,000 banks had failed and had to be taken over by the FDIC); and federal budget deficits that were at near record highs. The budget deficits in turn were the result of economic stimulus efforts, and the costs of the Desert Storm war to drive Saddam Hussein’s Iraqi forces out of Kuwait.

Similar to the situation of our current president, the new president in 1993, Bill Clinton, became increasingly less popular as his efforts to revive the economy seemed to be taking too long, while he seemed to put too much effort into side issues like attempting to reform healthcare.

However by 1996, contrary to the fears of 1993 and 1994, the economy was recovering dramatically, and the stock market continued in what would become the longest and strongest bull market in history. Some of the economic highlights included the record budget deficits that were sure to bankrupt the country being reversed to significant budget surpluses.

Is it possible the present similarities to the early 1990’s could continue?

No one thinks so right now. The current opinion is similar to that of Time magazine in 1992, that the “once in a lifetime dislocations will take years to work out.”

I sure don’t have a crystal ball that’s tuned to look out five or ten years.

But I have been saying for more than a year that the market should see an important low in the October/November time-frame this year, followed by a dramatic rally of 50% to its high next year. That expectation of a further decline from here, followed by an important buy signal, is based on indications that the degree of economic slowdown has not been fully factored into stock prices, my belief that it’s still too early for the market to anticipate an improving economy six to nine months out, the market’s annual seasonality, and the history of the Four-Year Presidential Cycle.

Being reminded of the similarities to the fears and conditions in 1992 has me even considering the possibility that before year-end we could even return to buy and hold being a viable strategy again. What would that be like after the ‘lost decade’ so many investors experienced?

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules