Zbigniew Piekarski On learning from market history
Each new generation rediscovers sex and cannot imagine that their parents still perform the act, let alone their grandparents. Each new generation rediscovers that the illicit use of "banned substances" can bring added pleasures and cannot imagine that their parents engaged in similar transgressions, let alone their grandparents. Each new generation of investors and investment managers believes that "this time it is different" and that the natural tendency is for the markets to rise - as did their parents and their grandparents.
For those who were investing between 1921 and 1929, the bull market was the longest in history, lasting two four-year cycles, unprecedented at the time.
The 1921 to 1929 bull market led to total gains of 568 percent from the 1921 low to the 1929 high of 381 on the DJIA (Dow Jones Industrial Average). The bear market that followed concluded as the next four-year cycle low occurred in 1932. This bear market was 37.5 percent of the duration of the preceding bull market.
For those who were investing between 1942 and 1966, the bull market was the longest in history, lasting six four-year cycles, unprecedented at the time.
The market advanced a total of 1,076 percent from the 1942 low to the 1966 high of 1,001 on the DJIA. This bull market doubled the percentage advancement of the preceding bull market. The bear market that followed ran from the 1966 high to the 1974 four-year cycle low of 570 on the DJIA.
This time around it took two full four-year cycles to correct the preceding bull market. This was also a first in financial history. In spite of the fact that the bear market correction required two complete four-year cycles, the bear was still true to his nature as the duration of bearish conditions was 33.33 percent of the length of the preceding bull market.
For those who were investing between 1974 and 2000, the bull market was the longest in history, lasting seven four-year cycles, unprecedented at the time.
The greatest bull market to date began with the 1974 four-year cycle low and ran
to the four-year cycle peak in January 2000. This bull market comprised a series of seven four-year cycles and the market advanced a total of 2,061 percent from the 1974 low of 570 on the DJIA to the January 2000 high of 11,750 on the DJIA.
Once again, this bull market doubled the percentage advancement of the preceding bull market. Also the duration was stretched by an additional four-year cycle.
Now the great bear is in the early stages of correcting the great bull. This process began in 2000 and it is not over yet.
The greater the bull market, the greater the bear market that follows and this bear market is very likely to be the longest and nastiest in history. We are still only in phase one.
The Jabberwockies on TV are convinced that the recession of 2001 was the mildest downturn in recent memory; that the October 2002 low was the "mother of all bottoms"; and that the fiscal and monetary stimulus applied by the Fed will avoid or temper the correction.
Yet it does not matter that we have more money pouring into the market this time around. It does not matter if the Fed and the smaller central banks cut rates or print more money, or buy back bonds. It does not matter if the markets are being manipulated. It does not matter if the government's financial statistics are being spun to look good and it does not matter if the ordinary SLD replaces the corrupt SLD.
All this does is to prolong the inevitable. Market forces are at play and this is all that matters. Historically, the bear markets of the past ran for about one third of the duration of the preceding bull market (a Fibonacci ratio of 38.2 percent) and the current bear market will do the same.
The more that natural market forces are fought, the bigger the decline is going to be. There is simply no way that a bull market advance of 2,061 percent, which took 26 years to complete, will be corrected in 3 short years. The decline from 2000 into 2002 was just the first phase.
The great Dow Jones theorists of the past have pointed to what actually happens.
E. George Schaefer described the three phases of the bear market as follows:
"The first phase represents abandonment of exaggerated hopes upon which stock prices were based when they reached their bull market peaks. The second phase reflects poor business and earnings reports as they steadily become worse. The third phase plunges the market to its final depths as economic deprivation forces many investors to sell against their wishes, regardless of price, in order to raise cash."
Robert Rhea described the three phases of the bear market in a very similar way but more importantly stated that: "Each of theses phases seems to be divided by a secondary reaction which is often erroneously assumed to be the beginning of a bull market". Does this sound familiar?
I would rather follow the advice of the legendary Dow theorists, each of whom was responsible for exceptionally good calls in their time in the markets, than to the present pundits and Jabberwockies whose verbosity and enthusiasm is in inverse proportion to their knowledge and responsibility.
Should you wish that your finances survive and prosper, join us on www.gpmanagement.com
On the WSE: As King Solomon wisely said more than two millennia ago, "The prudent see danger and take refuge, but the simple keep going and suffer for it."
The first decline in the Wig20 will be some 200 points. It will bounce off 1300/1350 for a brief rally before descending further next year. If you are not "short" then get out of the markets entirely and hold cash. Preferably Swiss Francs.
For those who were investing between 1921 and 1929, the bull market was the longest in history, lasting two four-year cycles, unprecedented at the time.
The 1921 to 1929 bull market led to total gains of 568 percent from the 1921 low to the 1929 high of 381 on the DJIA (Dow Jones Industrial Average). The bear market that followed concluded as the next four-year cycle low occurred in 1932. This bear market was 37.5 percent of the duration of the preceding bull market.
For those who were investing between 1942 and 1966, the bull market was the longest in history, lasting six four-year cycles, unprecedented at the time.
The market advanced a total of 1,076 percent from the 1942 low to the 1966 high of 1,001 on the DJIA. This bull market doubled the percentage advancement of the preceding bull market. The bear market that followed ran from the 1966 high to the 1974 four-year cycle low of 570 on the DJIA.
This time around it took two full four-year cycles to correct the preceding bull market. This was also a first in financial history. In spite of the fact that the bear market correction required two complete four-year cycles, the bear was still true to his nature as the duration of bearish conditions was 33.33 percent of the length of the preceding bull market.
For those who were investing between 1974 and 2000, the bull market was the longest in history, lasting seven four-year cycles, unprecedented at the time.
The greatest bull market to date began with the 1974 four-year cycle low and ran
to the four-year cycle peak in January 2000. This bull market comprised a series of seven four-year cycles and the market advanced a total of 2,061 percent from the 1974 low of 570 on the DJIA to the January 2000 high of 11,750 on the DJIA.
Once again, this bull market doubled the percentage advancement of the preceding bull market. Also the duration was stretched by an additional four-year cycle.
Now the great bear is in the early stages of correcting the great bull. This process began in 2000 and it is not over yet.
The greater the bull market, the greater the bear market that follows and this bear market is very likely to be the longest and nastiest in history. We are still only in phase one.
The Jabberwockies on TV are convinced that the recession of 2001 was the mildest downturn in recent memory; that the October 2002 low was the "mother of all bottoms"; and that the fiscal and monetary stimulus applied by the Fed will avoid or temper the correction.
Yet it does not matter that we have more money pouring into the market this time around. It does not matter if the Fed and the smaller central banks cut rates or print more money, or buy back bonds. It does not matter if the markets are being manipulated. It does not matter if the government's financial statistics are being spun to look good and it does not matter if the ordinary SLD replaces the corrupt SLD.
All this does is to prolong the inevitable. Market forces are at play and this is all that matters. Historically, the bear markets of the past ran for about one third of the duration of the preceding bull market (a Fibonacci ratio of 38.2 percent) and the current bear market will do the same.
The more that natural market forces are fought, the bigger the decline is going to be. There is simply no way that a bull market advance of 2,061 percent, which took 26 years to complete, will be corrected in 3 short years. The decline from 2000 into 2002 was just the first phase.
The great Dow Jones theorists of the past have pointed to what actually happens.
E. George Schaefer described the three phases of the bear market as follows:
"The first phase represents abandonment of exaggerated hopes upon which stock prices were based when they reached their bull market peaks. The second phase reflects poor business and earnings reports as they steadily become worse. The third phase plunges the market to its final depths as economic deprivation forces many investors to sell against their wishes, regardless of price, in order to raise cash."
Robert Rhea described the three phases of the bear market in a very similar way but more importantly stated that: "Each of theses phases seems to be divided by a secondary reaction which is often erroneously assumed to be the beginning of a bull market". Does this sound familiar?
I would rather follow the advice of the legendary Dow theorists, each of whom was responsible for exceptionally good calls in their time in the markets, than to the present pundits and Jabberwockies whose verbosity and enthusiasm is in inverse proportion to their knowledge and responsibility.
Should you wish that your finances survive and prosper, join us on www.gpmanagement.com
On the WSE: As King Solomon wisely said more than two millennia ago, "The prudent see danger and take refuge, but the simple keep going and suffer for it."
The first decline in the Wig20 will be some 200 points. It will bounce off 1300/1350 for a brief rally before descending further next year. If you are not "short" then get out of the markets entirely and hold cash. Preferably Swiss Francs.
