The 12-Year-Low Yardstick

I am as sick as you are of talking (and typing) heads calling bottoms. I also have a bad case of trauma-induced tickerphobia (both potentially positive contrarian signs). So I am filing this one in the "food for thought" category.

JP Morgan reports today that since 1900, there have only been two occasions where the Dow cracked 12-year lows: April 8, 1932 and December 6, 1974. In the first case, it occurred 3 months prior to the bottom. In 1974, it marked the exact bottom.

In each case, the recession still had months to go, and unemployment was months from peaking. However, buyer beware: In 1932 you were only 3 months early if you bought when the market breached the 12-year low, yet you would've lost 34% in those 3 months! You would've gained 5% after 6 months, but lost 12% over 12 months - although over the next few months you would've gained more than 50% and never looked back. In 1974 the market rocketed 45% in 6mos, and about 65% in 15 mos off the bottom.

Again, not a prediction, just a history lesson. The takeaway is that things looked really bad at each of these points in history, yet the market was able to post big gains.

Comments

[Jim Hawthorne:]

Thanks, Todd! I'm sure there are about 50 million of us that wholeheartedly agree with you!

Bottom-callers and arm chair prognosticators are a dime a dozen these days, and it seems there is always room for one more jabbering talking-head on the trendy bandwagon.

Calling a bottom has all the chance of success of correctly calling the weather for Thule, Greenland this time next year, only it is much more dangerous. Bottoming is a process rather than an event, and involves healing wounds that have transpired over the previous weeks and months; possibly even years.

I've become as cranky as anyone wanting to see clear signs of the beginnings of that elusive bottoming process, but the truth (in my opinion) is that it is still over the horizon.

Part of the problem is that we are in a crisis that none of us (no, not even Warren Buffett) have been in before!

Let the shills and prognosticators and even the shameless 'snake oil salesmen' of CNBC spew their mindless trash. Cautious, prudent conservatism will pay dividends to the patient investor!

There will be opportunities; make very sure the tide is rising before you dive in!

Mar 03 04:32 PM

[Dave Wrixon:]

S&P 500 gross earning were negative for the last 12 Months. They will probably be negative for the next 12 month period as well. Generally valuations are based on earnings. You can see the average investors dilemma, can't you?

Mar 03 05:22 PM

[logicalman:]

i wish i could vote 10 times on the + side for your excellent comment on this also excellent article...couldn't agree with you more.


On Mar 03 04:32 PM Jim Hawthorne wrote:

> Thanks, Todd! I'm sure there are about 50 million of us that wholeheartedly
> agree with you!
>
> Bottom-callers and arm chair prognosticators are a dime a dozen these
> days, and it seems there is always room for one more jabbering talking-head
> on the trendy bandwagon.
>
> Calling a bottom has all the chance of success of correctly calling
> the weather for Thule, Greenland this time next year, only it is
> much more dangerous. Bottoming is a process rather than an event,
> and involves healing wounds that have transpired over the previous
> weeks and months; possibly even years.
>
> I've become as cranky as anyone wanting to see clear signs of the
> beginnings of that elusive bottoming process, but the truth (in my
> opinion) is that it is still over the horizon.
>
> Part of the problem is that we are in a crisis that none of us (no,
> not even Warren Buffett) have been in before!
>
> Let the shills and prognosticators and even the shameless 'snake
> oil salesmen' of CNBC spew their mindless trash. Cautious, prudent
> conservatism will pay dividends to the patient investor!
>
> There will be opportunities; make very sure the tide is rising before
> you dive in!
>
>
>

Mar 03 06:17 PM

[The AntiCramer:]

The comments on this post outshine the article.

Difference between today and the seventies is a global credit meltdown. If I had the means I would gladly hit each CNBC shills bids.

Mar 03 08:45 PM

[Moon Kil Woong:]

Great when the market recovers I can rent a movie about the 2008-2009 stock market catastrophe from Circuit City. Oh sorry no Circuit City. Virgin, oh sorry no US Virgins. Oh Blockbuster. Oh sorry no Blockbuster.

Ok now maybe you see why it may actually be the 2008-2010 or 2011 or 2012 catastrophe instead.

Mar 04 12:34 AM

[Joe Botana:]

They say that those who ignore the lessons of history are destined to repeat them. Thanx 4 pointing out this interesting historical bit of data.

I was not around in '32 but I was in '74 and also in '80-'82. Things looked awful back then too. Remember the "misery index" in the late '70's & early '80's? As Todd points out, in '74 we turned around & went back up after this point. In '80 - '82 we never crossed this point but also went up months after it seemed sooooo desperate.

Also, I think all of our grandparents (or great-grandparents, for the younger ones among you) who lost their savings in the great banking collapse of the Great Depression would take issue with the comment that there was no financial industry meltdown back then!

Are we calling a bottom here? Absolutely not. But, does history teach us that there is a reasonable chnce that we're close? Yes, it does.

Mar 04 12:51 AM