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“A bear out there” hysteria

The recession, we are going through, started officially in October 2007. My personal opinion is that it actually started a lot sooner, circa at the beginning of 2007, but that is not the point I want to write about. Recently our economic data are showing some improvement and it seems that we are at the beginning of a recovery. Of course there are careers and branches out there which are still waiting for its improvement process to begin, such as new construction in residential and small commercial industry is still very slow, while housing itself is indicating some improvements.

 

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If the recession started at the end of 2007, it is 17 months since then. Even though many say that this recession is different, it actually is not. When you take a look at the entire history of recessions, you will see, that all are same as the previous. Some are longer and deeper, some are shorter and shallower. But all are exact same and there fore we may expect similar progress during this recession too.

Of course, investors shall be cautious when investing or moving money back into stocks, but there is no doubt we are already marching out of the recession. A few weeks ago I talked to a friend of mine in some party and we discussed the stock market, economic issues and someone joined us with strong words of explanation why there is no end of this recession yet and the worst is in front of us. I was looking at that person with my mouth widely open asking myself a question how somebody can be so skeptical.

Today I have read an article “Why are company insiders selling?” and in the first three paragraphs you can read that the insiders are selling because the bear is still out there and the stock market may fall again. Well it may fall and it will. It has been growing since March 09 until June 12 and then it corrected. The correction was as by books. Since then, it is growing again in a sharp pace so it is obvious that one day it will correct again, but talking about a bear out there?

I remember William O’Neil talking in his book How To Make [tag]Money[/tag] In [tag]Stocks[/tag] when public and commentators are too excited of a bull market it typically indicates its end and vice versa when they suffer from hysteria of a bear market it typically indicates its end as well.

Why I think that this is all hysteria about which O’Neil is writing? Our company decided recently to switch our 401k provider and the new one provided us with the following data:

Post War Bear Markets

Peak Through Duration (months) S&P 500
Cumulative
Price Decline
Price Gain
12 Months Later
05/29/1946 05/19/1947 12 -28% 19%
02/02/1953 09/14/1953 7 -14% 38%
07/15/1957 10/22/1957 3 -21% 31%
12/12/1961 06/26/1962 6 -28% 33%
02/09/1966 10/07/1966 8 -22% 33%
11/29/1968 05/26/1970 18 -36% 44%
01/11/1973 10/03/1974 21 -28% 38%
06/30/1975 09/16/1975 3 -14% 28%
12/31/1976 03/06/1978 14 -19% 13%
09/11/1978 11/14/1978 2 -14% 12%
02/13/1980 03/27/1980 1 -17% 37%
11/28/1980 08/12/1982 21 -27% 58%
10/10/1983 07/24/1984 9 -14% 30%
08/25/1987 12/04/1987 4 -34% 26%
07/16/1990 10/11/1990 3 -20% 34%
07/17/1998 08/31/1998 1 -19% 40%
03/24/2000 10/09/2002 30 -47% 36%
Median 7 -21% 33%
10/09/2007 03/31/2009 17 -47%

NOTE: Dates are shown in US format: MM/DD/YYYY
Source: Zephyr; LPL Financial

As you can see in the table above, recent crisis is same as the previous ones, so there is no need for panicking and hysteria as you may see in news these days. From the history we may expect another bear market in about two to three years (in worst case).


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One response to ““A bear out there” hysteria”

  1. Floost says:

    Thank you! You often write very interesting articles. You improved my mood.

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