I have plenty of GOLD, GAS and AMMO,...May 26, 2000: Historical Comfort Food. The best way to demonstrate why I think the Nasdaq is so close to a bottom that the downside risk here is negligible is simply to look at history. I chose to start on January 1, 1971, because the subsequent 30 years easily includes the worst bear market since the Great Depression of the 1930s. Following is a bit of Nasdaq history that we have gotten from the Nasdaq itself, and from our friends at Solomon Smith Barney and Credit Suisse First Boston. We begin with the Nasdaq Composite Index around 100 in early 1971.
Nasdaq Bear Markets
1971 - 2000
period high low % loss duration
Jan. 1973 - Oct. 1974 136.4 55.5 -59.3% 21 months
Nov., 1980 - crosses 200
Sept. 13, '78 - Nov. 14, '78 139.3 110.9 -20.3% 2 months
Aug. 27, '87 - Oct 28, '87 455 292 -35.8% 2 months
Apr., 1991 - crosses 500
Jul. 16, '90 - Oct 16, '90 469.6 325.4 -34.5% 3 months
Jul., 1995 - crosses 1,000
Jul., 1998 - crosses 2,000
Jul. 20, '98 - Oct. 8, '98 2.014 1,419 -29.5% 2.5 months
Nov., 1999 - crosses 3,000
Dec., 1999 - crosses 4,000
Mar., 2000 - crosses 5,000
Mar. 13, '00 - May 24, '00 (?) 5,048.6 3,155.1 -37.5% 2.5 months (?)
If we examine the table of bear markets above, clearly the 1973 - '74 period was a historical abberation, as was the Great Depression of the 1930s. During the '73 - '74 bear market, the Vietnam War was at its peak, inflation was beginning to accelerate dramatically, productivity was in a steep decline, oil shocks had hit an economy heavily dependent on oil, living standards were declining, and we were in a period of correction from a speculative bubble in the very early 1970s.
The only factor in common today with the '73 - '74 bear market is the correction from a speculative bubble caused by Greenspan and the Fed. That's now over. We are experiencing today the exact opposite of what happened then. We are not at war, inflation is zero and stable, productivity is climbing sharply, oil is now a minor factor in our economy, we are in a period of dramatically increased discovery, innovation and wealth creation, and living standards are rising dramatically.
It seems clear to me that this correction is much more like the rest of the corrections over the last 30 years. In other words, we are near the maximum length of other major corrections, and we have exceeded the maximum of the range of losses of these corrections. Unless the Fed and Congress both screw up as colossally as they did in the 1930s, which is unlikely, to say the least, the worst is behind us. If you sell now, history says you will be selling at the worst possible time. I hope the table above helps you put this correction in perspective. As I keep saying, risk is minimal, and all that's required now is patience.
Sometimes that's just life. Live it.""
BUY Q............. |
