Hiram,
Actually, even the 1973-74 bear was not directly caused by inflation nor the 1981-82. It's not until the Fed really fights the inflation with higher interest rates, that the bear occurs.
Marty Zweig's Winning on Wall Street does an excellent job of describing the 3 causes of bear markets. Note: The book came out around 1986, so it doesn't cover the 1987 crash or the 1990 baby bear.
The causes are:
1. Extreme deflation: Occurred in the early 1920's and all thru the 30's for a total of 4 bears ranging from -37% to -89%.
2. Inverted yield curve: This is usually caused by the Fed fighting inflation. They raise the short term rates (< 1 yr) over the long term (>10 yr) and a recession occurs to kill the inflation.
3. Very High P/E Ratios - He labelled a S&P500 P/E of 18 or more as expensive.
Some bear markets had 2 of the 3 causes occurring, such as the 73-74 had the inverted curve and started out with the high P/E ratio.
Only the 1929-32 had all three conditions.
As far as hiding assets during deflation, there is something you must do first. And that is get rid of all liabilities. Again, for Japan, it isn't the asset collapse that kills so much as the debt, even at the low interest rates. You really can't go bankrupt if you don't owe anything!
But excluding that, probably just spreading your bets on assets as wide as possible. Theoritically, long term US Bonds would be best. But would you trust the gov. 100% to honor them?
Right now, I would say that a bear market will come from the P/E ratios being so high, that if (or when) the majority of companies do not have earning gains to 'justify' those P/Es, the market will collapse. The question is then, where does the money go when fleeing the bear? I think the lack of a viable alternative for $ now holds the market up at these levels as much as company earnings do.
Mat |
