Bear Market? Numbers Don't Add Up

What's wrong with this picture? 

I keep hearing the powers that be say that this is the worse credit crisis since The Depression.  When I look at the credit markets, it is easy to see the tremendous stress.  For example the TED spread - the difference between Eurodollar LIBOR rates and 3 months T-bills and a proxy for risk in the inter-bank market - was as high as 3.09% on Wednesday, up from the close of 2.50% Tuesday, and at levels we saw last Wednesday and Thursday when the end of the world was supposedly upon us.  Also, corporate spreads are as wide as they have been in at least decades.

Yet, from the peak in October, stocks are down less than 25%.  According to a piece I read from Ned Davis Research on Wednesday, the average return in bear market since World War II has been a decline of 27%.  Also, the duration of this bear market has lasted a little less than the average bear market.

We are in recession, the broad market is not cheap and de-leveraging is ahead of us.

So, why do the bulls tell us that the bottom is near?

Please enlighten me.  I'm confused.

Comments

[investor88:]

Bulls say bottom has been reached at 10,480 or else is near. Bears are talking of sub10k Dow maybe 8k. Charts seems to suggest a bear market in progress as are other indicators like the TED spread pointed out in the above article. With most portfolios bleeding, it is better to be safe and be prepared for the worst.

2008 Sep 25 05:53 AM

[Nick Gogerty:]

Equities yield roughly 4.5% on a PE basis. Historical average from 1930 for the US is 6.8%. Historical equity risk premium over 10yr US TSY is 3-4%. The market is either expecting 30%+ earnings growth or it may be in for the surprise you mention. I bet on the surprise being more likely which would be a 20-30% decline. Dow 8,500.

2008 Sep 25 08:54 AM

[leh:]

Two words: Wishful thinking.

That, after all, is what makes a bull a bull.

2008 Sep 25 09:21 AM

[sieraromero:]

Looking back at the last 2 major political conventions.[Sorry others] The dems were pointing out all of these problems in the economy and trying to find possible solutions to them involving major changes to the system. The gop were saying that the economy was strong under the present leadership and would continue if their canidate was elected. They insinuated that to say differntly was unpatriotic and anti-american. They said we needed less gov, regulation on business. Fast forward 1 month! Now we need more regulations and need to bail out big business or our economy will collapse! LOL--GOOD LUCK TO YOU ALL !

2008 Sep 25 10:35 AM

[anarchist:]

Dave W and leh, what you thinkin baby? hey, the $700 B bailout isn't approved - no safety net. Congress is inundated with pissed-off voters telling them to dump this piece of shit. Now you may argue that the bailout is necessary and that may be true but our benevolent Congressmen and Women want to be reelected more than they want to take the time to sort out whether we need $700 B to prevent armageddon. My guess is that in the near term the market will sink on this indecision and after the package is finally approved by the nabob Congress the market will once again think this is the bottom until the financial realities of the housing crises and the credit card debt crises comes down. SBS, GID, forget gold.

2008 Sep 25 10:59 PM

[sr9web:]

Uh, this is a Bear Market - but you don't see it because:

1) We've already bounced off the lows (and will continue to do so for some time)

2) The "market" is not homogeneous - some sectors have been MURDERED, others not so much.

Try telling anyone who's been in REITs, financials, RE Builders or Mortgage lenders in the last year that there's no bear...

2008 Sep 26 02:01 AM

[Ringoes_Man:]

This is a pre-depression market.

First of all, balance sheets have become exercises in obfuscation. Not long ago AIG and BoA had basically the same balance sheet. One went broke the other is still fooling us. So forget your financial numbers they are meaningless.

The underlying cause to the coming crash is that the consumer (2/3 of our economy) is broke. Wages have been flat for 7 years. Jobs have disappeared overseas. Borrowing against equity and credit cards only got us so far and now its time to pay the piper.

You simply cannot have a just service (non-manufacturing) economy; which is what he now have. Service jobs exist to service manufacturing jobs. Without a manufacturing base any economy will fail. (ok with the exception of the SWISS)

We need American jobs for American consumers -FIRST!

The solution to this crisis is a 5-15% tariff on all imports. Only with such a penalty, will companies manufacture products in America using American Labor. Only then will EXXON drill in America rather than overseas where labor is 60 cents a day. We also need legislation to limit adjustable mortgages to .5-1.0% per year. NO ONE can adjust to a 2-10X jump in their monthly mortgage payments.

I am fully expecting a depression and pulled out of the market in January. My problem is figuring out where to put the money to protect it from the coming inflation storm as my government puts the dollar bill printing presses into high gear!

Ideas anyone?

2008 Sep 26 03:12 PM

[Makes Sense:]

ringoes_man: "The solution to this crisis is a 5-15% tariff on all imports."

That's what they said in 1930! Ever hear of Smoot-Hawley?

en.wikipedia.org/wiki/...

It was a contributing cause of the Great Depression.

2008 Sep 26 04:10 PM

[DaveW:]

User 257896, this puppy will unfortunately/fortunat... (insert preferrable word) be passed. Some of our senators and congressmen are indeed putting up a 'good fight', so they won't be blamed by their constituents and just might be able to keep their jobs come next election. This fight is only bluster and smoke. The bailout will indeed be passed and the markets will cheer with impressive strength, we saw a hint of it in the last hour of today's trading, the stored tension in the markets is dying to go from oversold to overbought, and quickly. I'll be ready to sell my ultras and pick up more ultra-shorts in coming days...

ringoes_man, with a devalued dollar I would suggest commodities such as agriculture (people have to eat), so DBA is a good play. Also, natural gas, UNG is at resistance currently with a seasonal upswing imminent.

2008 Sep 26 05:26 PM

[AmericanGla...:]

Makes Sense - LOL. Yes, old ideas (Smoot-Hawley) become new again. Thanks for bringing that up. Also read "Economics in One Lesson" (the original poster) for a good summary of why your idea is bad.

2008 Sep 29 11:51 AM