Friday, March 28, 2008

Will the Bear Market Last Until 2014?

Check out this insightful interview dated December 10, 2007 with Russell Napier, author of Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms. The interview takes several minutes but it is well worth the listen.

Napier studied the four historic market bottoms of the 20th century with major lows created in 1921, 1932, 1949, and 1982. He defines these market bottoms by declines in market valuations. He also comments on the market tops and suggests we reached a market top in 2000 and a new long-term bear could last until 2014. Napier states that there are plenty of great trading opportunities during these long-term bears but they are not “buy and hold” markets. I tend to agree.

Napier’s research is amazing as he read 70,000 Wall Street Journal articles two months prior and two months after each of these bear market bottoms. Based on his research, what sort of headlines should we expect to see before we declare a new market bottom? Napier expects to see plenty of these sort of headlines:

Disgruntlement with the Federal Reserve
Pressure for a new monetary system
Lots of discussion why you should never buy equities
Talk of a possible bond collapse
Dangers of holding your money in a bank
Talk of deflation
Questions about the long-term future of America
In my opinion, we are starting to see some of these headlines but I agree with Napier that we have a ways to go before we hit bottom. If the Fed hadn’t stepped in and bailed out the market over the past 6 months, we might be seeing more of these headlines. In my opinion, the Fed is just prolonging the agony. You may not agree with my opinion. Regardless, Napier’s research is certainly interesting.


Lulet said...

That was really interesting to read.

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