From a small northwestern observatory…

Finance and economics generally focused on real estate

Archive for March 11th, 2020

Welcome to the bear market, folks

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Please watch your step.  This will be a lot messier than you’ve seen for the past decade or so.  You’ll want to wear rugged clothes and comfortable work boots.  I’d wear a hard hat and goggles, too.

So apparently we’re in one.  The term can be confusing — an individual stock can be in a bear market, but right now, we’re talking about the whole shooting match — NASDAQ, Dow Jones, and S&P-500.  We call it a “bear market” when it drops 20% from its 52-week high.  Many of you have never seen one.  I’ve seen more than a few.

The average recorded bear market lasts 367 days, but some pundits unofficially say more like 18 months or so.  That’s from the beginning of the bear until the market returns to 20% above the eventual bear trough.  Between 1900 and 2008, we’ve had 32 recorded bear markets.  We were clearly overdue for one.  Bear markets are usually accompanied by recessions.  Hence, the hoarding of toilet paper.  There are generally two kinds of bear markets — cyclical and secular.  Secular bears last much longer.  Indeed, one could argue that the entirety of the 1970’s was one long secular bear market.  Cyclical bears tend to be deeper but shorter.  Hopefully, that’s what we’re in right now.

Prices can cycle up and down during a bear, but until we get 20% above a bottom, we’re still considered to be in a bear trough.  Here’s the good news — historically, once the market finds a bottom (and that may take time), the bull run can last quite a bit of time.  Consider the most recent cyclical bear, that happened in 2008.  The Dow closed at 6,544.44 on March 6, 2009, down 53.4% from its peak.  Of course, since that bottom, the Dow has risen almost 500%.

The most severe, sharp bears seem to be related to a world event.  In the prior example, which was the second worst on record, it was the real estate securities melt-down.  The third worst on record was the 1973 bear, which is generally attributed to President Nixon’s mishandling of the gold standard.  Of course, the worst bear in history was the 1929 crash, when the Dow fell 94%.  More typical bears are those which simply follow a long bull run.  For example, the 2000 bear began on January 14, 2000, and the Dow eventually fell 37.8%.  (Notably, that bear INCLUDED the 9/11 terrorist attacks, but was not precipitated by it).  The 1970 bear began at the end of 1968, and the Dow eventually fell 30%.

Just like everyone else, I’m watching my portfolio with more than a little trepidation.  However, my own investments were pretty well thought out during the bull run, and should serve me well as insulation from any bears.

I’ll keep you posted.

Written by johnkilpatrick

March 11, 2020 at 12:59 pm

Posted in Uncategorized

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