So Is It a Bear Market Yet?
Is a bear market in stocks beginning? The great Richard Russell recently said it's not beginning - it's picking up where it left off in 2009.
His idea is that a bear market began in 2007, when the stock market topped off on October 9, 2007 at 14,164.53. The Fed interventions in 2008 - 2009 stopped the bear in its tracks - until now. He thinks we're now seeing the bear waking up and resuming its rampage.
I give Russell a lot of credibility as a rule, but you can also simply notice that all the world's markets from the U.S. to Europe to Asia, including China, have dropped. In fact, if you follow "moving averages" like 50-day moving averages and 200-day moving averages, they're all below both - significantly below. And if things continue to trend down in the coming weeks, we'll feel more sure that the bear has us locked in its jaw and is chomping down with a vengeance.
If you own a lot of stocks, you should probably consider whether you want to live with seeing them lose value - maybe a lot of their value. But if you don't own stocks, who cares, right? Not so fast.
Remember that the stock market serves as a kind of forecast of things to come. Oh, it's not always perfectly on target with every move up and down. But the way Russell looks at the trends in stocks - through the lens of Dow Theory - the stock market serves to let us know when business is going into a slump or ready to take off. And Russell's saying that Dow Theory signals indicate a possible slump coming up. Slump as in recession.
The key here is to understand the difference between primary and secondary trends in the stock market. If the trend up or down is a primary trend, it is telling us something about what's coming up in business in the next 6 - 18 months. And since it's telling us early on, before most other people are talking about it, it's kind of letting us in on a secret. But if it's only a secondary trend, that's not necessarily letting us in on anything. The key is to know the difference between a primary and a secondary trend.
So if Russell's right and we're in a primary bear market, you don't have to own stocks to be concerned. Recessions mean trouble for many if not most of us. Business activity slows down. People get laid off. You get the picture.
Now, if you're thinking that we really never recovered much from the last official recession, you'd be right. And if we're going into a new recession, that's a bit worrisome. It's worrisome because if we didn't really recover strongly, people haven't had much time to save up any money for emergencies. Not that they were doing much saving before the recent recession - which contributed to why it was so painful for so many, and continues to be painful for those who remain unemployed.
In fact, in a recent survey, 30% of all people said they had no savings. NO SAVINGS! Never mind the fact that many peoples' savings are minimal - not even enough to survive for a year without some sort of outside assistance.
Think about a society where 30% of people have not savings, and many more have very little. And now think about what happens if we really do go into a recession in the coming months.
You don't have to be an economist to realize that such a situation will be a really serious problem for not only the folks with little of no savings, but it will be a really serious problem for the rest of us.
Of course, you may believe that the government will "step in" and provide the assistance people need. They're not going to "let" things get bad - bad as in increased crime and even riots in the streets.
If that's what you think, then you ought to ask yourself where the government is going to get the money to "step in." Will they raise taxes? If so, what' will that mean to your situation? Will they borrow more money to create programs to help people, instead of raising taxes? If so, how will the government pay the interest due on that new debt? They don't have any money now.
You really should ask these sorts of questions if you think the government will somehow take care of things. It's time to realize that the government doesn't magically "come up" with money to address these sorts of problems. Too many of us believe in this kind of magic, fairy-tale image of government.
What it comes down to is that it's time for more of us to grow up and face the fact that governments get their money from taxes, which reduces our standard of living today, or borrowing, which will reduce the standard of living of our children.
Which do you prefer? There aren't any other alternatives - no magic.
So if we get a recession, maybe you can remember this and not look to government to "step in" and "fix" things. They have no tools but what eventually will come out of your hide or the hides of your children.
Is that what you want to happen?
His idea is that a bear market began in 2007, when the stock market topped off on October 9, 2007 at 14,164.53. The Fed interventions in 2008 - 2009 stopped the bear in its tracks - until now. He thinks we're now seeing the bear waking up and resuming its rampage.
I give Russell a lot of credibility as a rule, but you can also simply notice that all the world's markets from the U.S. to Europe to Asia, including China, have dropped. In fact, if you follow "moving averages" like 50-day moving averages and 200-day moving averages, they're all below both - significantly below. And if things continue to trend down in the coming weeks, we'll feel more sure that the bear has us locked in its jaw and is chomping down with a vengeance.
If you own a lot of stocks, you should probably consider whether you want to live with seeing them lose value - maybe a lot of their value. But if you don't own stocks, who cares, right? Not so fast.
Remember that the stock market serves as a kind of forecast of things to come. Oh, it's not always perfectly on target with every move up and down. But the way Russell looks at the trends in stocks - through the lens of Dow Theory - the stock market serves to let us know when business is going into a slump or ready to take off. And Russell's saying that Dow Theory signals indicate a possible slump coming up. Slump as in recession.
The key here is to understand the difference between primary and secondary trends in the stock market. If the trend up or down is a primary trend, it is telling us something about what's coming up in business in the next 6 - 18 months. And since it's telling us early on, before most other people are talking about it, it's kind of letting us in on a secret. But if it's only a secondary trend, that's not necessarily letting us in on anything. The key is to know the difference between a primary and a secondary trend.
So if Russell's right and we're in a primary bear market, you don't have to own stocks to be concerned. Recessions mean trouble for many if not most of us. Business activity slows down. People get laid off. You get the picture.
Now, if you're thinking that we really never recovered much from the last official recession, you'd be right. And if we're going into a new recession, that's a bit worrisome. It's worrisome because if we didn't really recover strongly, people haven't had much time to save up any money for emergencies. Not that they were doing much saving before the recent recession - which contributed to why it was so painful for so many, and continues to be painful for those who remain unemployed.
In fact, in a recent survey, 30% of all people said they had no savings. NO SAVINGS! Never mind the fact that many peoples' savings are minimal - not even enough to survive for a year without some sort of outside assistance.
Think about a society where 30% of people have not savings, and many more have very little. And now think about what happens if we really do go into a recession in the coming months.
You don't have to be an economist to realize that such a situation will be a really serious problem for not only the folks with little of no savings, but it will be a really serious problem for the rest of us.
Of course, you may believe that the government will "step in" and provide the assistance people need. They're not going to "let" things get bad - bad as in increased crime and even riots in the streets.
If that's what you think, then you ought to ask yourself where the government is going to get the money to "step in." Will they raise taxes? If so, what' will that mean to your situation? Will they borrow more money to create programs to help people, instead of raising taxes? If so, how will the government pay the interest due on that new debt? They don't have any money now.
You really should ask these sorts of questions if you think the government will somehow take care of things. It's time to realize that the government doesn't magically "come up" with money to address these sorts of problems. Too many of us believe in this kind of magic, fairy-tale image of government.
What it comes down to is that it's time for more of us to grow up and face the fact that governments get their money from taxes, which reduces our standard of living today, or borrowing, which will reduce the standard of living of our children.
Which do you prefer? There aren't any other alternatives - no magic.
So if we get a recession, maybe you can remember this and not look to government to "step in" and "fix" things. They have no tools but what eventually will come out of your hide or the hides of your children.
Is that what you want to happen?
Comments