Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (21364)	1/14/2005 9:08:29 AM
From: Chispas	Read Replies (1) \| Respond to of 116555

Secular Bear Markets and the Presidential Cycle... ... ... ... ... Comstock Partners January 13, 2005 It is increasingly likely that the cyclical bull market has run its course, and that the secular bear has either resumed already or will do so shortly. As of December 31 the counter-trend move was 26 months old, which is about as long these things generally go. In addition, as pointed out in our comment of December 2, post-election day rallies in presidential years usually peter out between mid-December and mid-January, followed by steep declines into the next year (please see archives). With a market peak so far at year-end 2004, this rally looks as if it may be ending on schedule. Our views are supported by the continuing global economic and financial structural imbalances, excessive valuations, widespread bullishness and the willingness—even eagerness-- of the majority of investors to overlook a myriad of negative factors that have brought down markets in the past. Although our assumption that we are in a secular bear will only be definitively established too late for most to avoid it, we think our case is solid, and it dovetails extremely well with the four-year presidential cycle. Little notice has been given to the fact that 2004 marked the third consecutive year that the annual market high was lower than the high made four years earlier, an event that never occurs in secular bull markets. In fact, even single years ending with a lower peak than four years ago happen only in bear markets. Until 2002, it had not occurred since 1977. In the past 70 years such events occurred 11 times between 1933 and 1949, and five times between 1970 and 1977. Note that both of these instances are generally regarded as periods encompassing secular bear markets. On the other hand, not a single year from 1950 to 1969 and 1978 to 2001 registered an annual market top below the high of four years earlier. Both of these periods were characterized by markets that trended upward most of the time. Another feature of past markets is that they have generally registered most of their gains in the last two years of presidential terms, and have tended to run into trouble in the first two years. This makes a lot of sense since various administrations have usually doled out the distasteful medicine in the first two years, and then tried to pump up the economy and markets in the last two. We looked at the market peaks in the final two years of presidential terms for the last 54 years and found that the market on average fell 22% to the bottom point of the following two years. Moreover the results were far worse in secular bear markets, when the average decline came to a whopping 34%. In our view this is far more meaningful than the year-ending-in-5 indicator. We learned long ago from our study of statistics that correlations with no basis in cause and effect are meaningless and should be ignored. To date we don’t know anyone with a valid reason why years ending in five should have any meaning. In sum, we believe that the market climate has now shifted to a point where the risks are the highest they have been since early 2000. We are aware that the majority believes otherwise, but that is always the way it is at times of maximum vulnerability. comstockfunds.com