That phrase seems to come around every now and then. I’m not sure where it comes from, but it seems apropos. I’d like to give you some charts today of past bear market bottoms. These are the well-known ones including 1921, 1932, 1982, 2003, 2009, and finally 2020 – our current market. Pay attention to the shape of the market values. Note in prior historical ‘big’ bear markets we had a significant bounce off of the bottom which I have labelled as ‘year one of bull market.’ In the first five charts we could easily look back and see that it was indeed the bottom of the bear market, and the start of a new bull market.
We do NOT know for certain that the area I’ve indicated as the bottom of the bear market is actually, indeed the bottom of the bear market, and that 2020 is indeed the start of a new bull market. It COULD be and looks very similar to past bear market bottoms. The prior bear charts show the strong bounce at the start of the new bull market, then show year two as a time when markets tested the situation (shown by the inverted ‘smile’). And finally in prior bears, the charts show in year three the continuation of the new stronger bull market.
I realize that I’m letting you do most of the work here. Past history is just past history, and markets as always, do the best they can to confuse and confound the majority of investors. Still, it is intriguing to note that these charts are amazingly similar. Are we at the start of the new upswing? Time will tell, but it certainly looks promising. We’ll see.
Ron’s Market Minute — Another Meeting of the Brain Trust?
We were having such a nice week but then Friday arrived and it’s like a mob boss showed up and said, ‘That’s a nice little rally you’ve got going there. It would be a shame if something happened to it.’
Not to be overly snarky, but have you noticed that whenever the ‘smart people’ get together for one of their famous confabs, the markets tend to step up their volatility? Whether it’s Davos or Jackson Hole, it’s sure to get financial journalist’s attention and predictably, speculation shall spew forth. Need I say that this is not a good thing?
The Fed is getting together next week in Wyoming. Each of the attending governors will bring their respective crystal balls and each will bring their arguments for, or against, keeping the rate hikes train on its track.
Not to be too picky, or quick to criticize, but there are a couple of things that we would like the attendees to think more about. First, since they have become very focused on ‘demand destruction’ being a necessary component of inflation fighting, they should be watchful that too much is not ‘just right.’ Destroying demand creates behavioral changes on the consuming side. That is in fact the idea. However, history teaches us that once policy finally affects inertia (it takes time), it easily overshoots, creating a new problem. Re-invigorating demand is like restarting a locomotive: it ain’t easy. Next, we think it would be useful for technocrats, including government economists, to understand that we are still suffering from data sets that, due to a) the pandemic and b) government’s response to it, are quite unreliable. If you have phony numbers, it is impossible to use them to develop real-world strategies that work.
I doubt we will be hearing from Jackson Hole attendees seeking our advice but in case we do, we will politely suggest that it might be a good thing to avoid doing things that are not just as easily undone — when it’s time to un-do them.
Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
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Phoenix, AZ 85051
Phone (602) 252-8700
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www.denkinvest.com
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