Despite Big Fast Panic, It's Still a Normal Bear

Rough close yesterday, yowza.

Did you see the Greenspan interview with Maria yesterday? A panel of financial experts? I didn't know any existed.

I did not get a sense of panic being conveyed yesterday, which could be taken a couple of different ways I suppose, but I noticed something in the parade of what's happening now segments -- moreso in the questions asked than the answers given.

This hearkens to something Taleb talked about: the need to explain. Sometimes the best explanation is no explanation. If this is a bear market then we can count on it doing certain things. One of which is sawtoothing down to a 30% drop (maybe a little less, maybe a little more or maybe a lot more). The reason for Tuesday's 3.4% drop might be X but it is simply one more tooth in the saw.

The best thing investors can do is wrap their arms around that this is a bear market and this is how they work.

My target for a bottom for SPX has been 1095 because that is 30% from the top and I still believe the bear will be close to normal.

Everyone knows oil, gold, currencies, mining and emerging markets have been pasted in the last couple of months. This has naturally drawn out many people who are extrapolating the trends to continue like $80 oil and $650 gold similar to the $200 oil calls back when it was in the $140s.

If you are interested in just maintaining a diversified portfolio then you don't really need to get too caught up in this sort of thing (diversified portfolio assumes no lopsided bets). Over the last few years these segments have provided an awful lot of lift without having to pick stocks (as opposed to tech where only a few names have done consistently well).

The period where these segments can do this may be over (but i don't think that will be the case, I think this is a big fast panic as the others have been). If so then there will be other parts of the market that fill this role. Yesterday healthcare, telecom, utilities and staples did relatively well.

It is much easier to try to figure whether you have enough or too much as opposed to whether you should have any.

Comments

[cyclingscholar:]

Come on their dude! Comment on the parallel downtrend channel in the SPY and DIA charts. We are testing the July lows. If these tests fail, will we fall to the lower band this autumn? That would be your 30% bear market easily. Put some meat in your articles....they sound like they were written by community organizers.

2008 Sep 10 02:22 PM

[Alex Filonov:]

Well, the old joke was that YHOO, AMZN and AAPL make diversified portfolio. Same thing can be said about oil, gold and fertilizer (or grain, or whatever other commodity you think of). Although real diversification (by sectors) is boring...

2008 Sep 10 03:01 PM

[Larry House:]

Roger, I am glad you don't let the market action get in the way of your opinion. Roger, I will accept your view that this is just a normal bear market, and I will get my arms around it (whatever that means) if you will point out to me ANY bear market from the past 80 years that was caused by the same forces that have caused this one. Doggone it, Roger, we are in UNIQUE times. And your advice to just embrace it and be oblivious to all that is happening is dangerous advice and may get an investor's head handed to him. I respect all opinions about investments because no one (not even I) can be sure of being correct. But I think it is too soon to call this bear market anything but potentially the biggest badest bear most investors have ever seen. Anyone who thinks he or she has this market all figured out, and that it fits in some simple mould, is taking a horrific chance.

If I sound like a doom and gloomer, forgive me. I hold some stock funds (15%); precious metals (15%); short-term bonds (70%). I have placed my bets (that is about what the market is right now, a gamble), and time will prove me wise or foolish.

I urge all investors to think for yourself. Decide on your level of risk and time frame, which is so important in one's attitude toward this market, and invest accordingly.

Where do you invest personally, Roger? What is your asset allocation in these times?

Thanks, Roger. As I have said before, I always read your posts and find them a good sounding board. Keep up the good fight.

2008 Sep 10 03:14 PM

[Roger Nusbaum:]

LarryH, Part of my "normal bear" belief stems from the fear that I have seen in past events. I don't know how long you have been involved in the markets but fear from the 1987 crash was more than today, IMO. The fear from the Kuwait invasion in 1990 was a little less. The fear from the 97 Asian contagion was about the same and the fear from the 98 Russian debt failure was probably a little less.

I'm not sure how I would quantify the large fear from 2000-2002 but it was up there. This time has always been worse or different. This repeats over and over. Additionally the history of how the market works suggests that cutting in half twice in a decade will not happen. There needs to be time in between for a new generation of investors to come in.

Of course I could be wrong. My goal is to miss a chunk of the move down (which has lead me to having a lot of cash raised and some double short etf for ages) as opposed to being the guy that quantifies this exactly right.

Cycling scholar the time line you lay out would be pretty close to how long most bears last.

2008 Sep 10 04:03 PM

[gmiller:]

Disagree. This bear will be the most ferocious one of most of our lifetimes. We have never before had such an enormous debt overhang and wildly deflating asset bubbles. The mortage resets, defaults (already at 9%), oncoming trainwreck of commercial real estate, car loans, student loans and credit card defaults will be a financial tsunami, made worst by the resultant tax revenue implosion. Dude, brace yourself, it;s just beginning.

While we have better coping mechaisms than duing the 1930's, the scale of the problems is much larger.

The consequences may be catastrophic. I'm not sure what can be done to prevent it, only to pace and moderate it a bit.

2008 Sep 10 04:29 PM

[gmiller:]

Larry H. called it correctly.

2008 Sep 10 04:30 PM

[Larry House:]

Roger, my knowledge of the markets goes back 5 decades. I think it is a mistake to measure a bear market by the level of panic. I think it makes more sense to evaluate what is wrong that is causing the bear market and projecting how long these things may take to work their way out. Of course, the market should turn before the wrongs are righted. My view is we may well have more "panic" to come. I don't think we have seen the worst of the problems yet. Also, history can give us some instruction, but again, you don't cite any other down turn that has been triggered by what we are facing today. Therefore, I respectfully submit that you can't explain this market situation with a text book or by calling it "normal."

2008 Sep 10 05:21 PM

[Schweizer:]

Diversification will save you? So having a boat with 50 1-inch holes is better than a boat with one 50-inch hole?

Diversification and dollar cost averaging is for suckers.

2008 Sep 10 05:57 PM

[Bryan Gomez:]

I suggest you use the 520 day moving average if you wan tot estimate a bottom. For those who want the world to end, use 1000 day. That means a 3 year back track of all the gains we've made.

Roger when you say normal, it washes off that scared feeling. I agree with others that these are unusual times but again, extremes are made by the same people with same greed and fear and as soon as they are taken out of the market, will be replaced by another generation of people who will do the same.

Good for you not to play the panic game. Good Luck!

2008 Sep 11 02:51 AM

[mouse:]

How anyone can call what is happening now just another "normal" bear market is beyond me....I suppose people who don't study history (I mean the last several hundred years, not the last couple of decades) can't see the forest for the trees.....the coming economic collapse is eventually going to create plenty of fear that is absent now.

2008 Sep 11 10:07 AM

[kurt walter:]

I feel like a freak. I have zero debt and zero tattoos. Most the rest of world has gone mad.

2008 Sep 11 02:28 PM

[Roger Nusbaum:]

as many of you have said this time is different and worse.

schwietzer, diversification, a lot of cash and some double short.

2008 Sep 11 04:02 PM