It is a good time to neither a borrower nor a lender be. And a bad time to be an investor.
All the world’s stock exchanges are now officially in bear markets. England was the last one to cross the 20% line. “FTSE officially bear market,” reported the Financial Times over the weekend – stocks are down 22% from their October high.
Investment gurus and Wall Street shills tell us that this is a great opportunity. They think they see a bottom.
But bottoms do not come along every day. There have only been four major bottoms in the last 108 years says the Financial Times – ’21, ’32, ’49 and ’82. A couple important points – the closest two were 11 years apart. The last two were separated by 33 years. Also, major bottoms don’t happen at the beginning of a recession; they happen at the end of one…when an economy is ready for another big growth spurt.
Nor do they happen when stocks are still relatively expensive – as they are now. They happen when they are cheap…when they sell for 5 to 8 times earnings, not 10 to 15 times. They also tend to happen when the Dow and the price of gold are getting close to a one-to-one relationship. Just before the ’82 bottom, for example, you could buy the entire Dow for a single ounce of gold. Now, it takes nearly 12 ounces.
Most important, a real, major bottom doesn’t happen when you’re looking for it. It comes after you’ve given up…when investors have lost interest in stocks. You may recall a notorious cover from Business Week in the summer of ’82: “The Death of Equities.” No one was expecting a bottom; they thought stocks were dead.
Our guess is that we are still in the bear market than began in January of 2000. After 2002, the biggest, most reckless expansion of credit in history produced one of the greatest bear market corrections in history. Even so, stocks in the United States never hit new highs in terms of gold, or oil, or inflation-adjusted dollars. And now they’re headed down again – even in nominal terms.
Yes, there’s a bottom ahead. You’ll be able to see it coming…after you’ve forgotten to look.
for Markets and Money