January 23, 2009
U. S stock markets essentially marched in place today. The
NASDAQ gained 11.8
ending at 1,477. The
to close at 8,078. The S&P
500 rose 4.45 points
to 832. Oil rebounded to $46.47 a
barrel, and gold soared
to end at
ounce. The VIX was
unchanged at 47.27.
There were some upbeat articles, such as Mark Hulbert's Perspective
on this bear market. He cites a study by Ned Davis Research that shows that
the tech breakdown with the bursting of the dot.com bubble was more traumatic
than the present downturn, with IT stocks falling 82.5%, compared to financial
stocks which have, so far, declined 78.7%. Furthermore, IT stocks comprised
"about 35% of the S&P 500 at its March 2000 peak, in contrast to the
22% weight that the financials sector represented at its peak in 2007". He
concludes, "Trite as it may sound to say this, it is a helpful antidote to
doomsday thinking." My concern about this viewpoint is that, as I remember
the situation, Fed Chairman Greenspan eventually cut interest rates to 1%. There
was talk at the time about "pushing on a string" if this didn't work.
But it did work. The economy recovered using conventional monetary
manipulations. The difference this time (it would seem to me) is that the Fed
has fired its last conventional monetary bullet and has failed to stop the
charging bear. Of course, it might be argued that the Fed's lowering of the
interest rate to ½ % hasn't had time yet to take hold. That could be, but I
have the impression that no one thinks it will be sufficient this time to turn
things around (not to mention their explanations regarding the gigantic debt
bubble that's yet to be deflated). But of course, I'm sure that Mark Hulbert is
well aware of anything I know and far more besides. It would be interesting to
get his take on this overall picture.
A look at the 10-year S&P 500 chart below is interesting.
In 2002-2003, the market hit bottom three times over a nine-month interval, the
last bottom being a successful retest (at 804) of its October 10, 2002, low of
769. By contrast, the S&P hit an intra-day low of 741 before it rebounded to
close at 800. It closed today, two months later, at 832, with an intervening
high of 944 on January 6, 2009.
Obviously, we don't need to race to catch the upward wave if
this is a new bull market.