It's not your imagination: This bear is a mean one

As bear markets go, this one now is worse than average.

At Tuesday’s close of 996.23 the Standard & Poor’s 500 index was down 36.3% from its record closing high reached on Oct. 9, 2007.

Since 1937 there have been 11 bear markets, as Standard & Poor’s measures them. The average loss of value, from peak to trough, was 34% (not counting the current decline).

The minimum decline to qualify as a bear market is a 20% drop in the index.

Ned Davis Research calculates bull and bear markets differently, and counts 21 bear phases since the late 1930s, excluding this one. By its measure the average S&P 500 loss has been 29%.

In terms of duration, bear markets have been as short as three months (in 1987 and again in 1990) and as long as 62 months (1937-42), according to S&P.

At 12 months, the current bear is well short of the average length of 20 months, although excluding 1937-42 the average is 16.2 months, based on S&P data.

Two other historical notes:

--- If you’re rooting for this sell-off to end soon, we’re in the right month for it: October has a reputation as a bear slayer. Five of the 11 bear markets that S&P counts have ended in October (in 1957, 1966, 1974, 1990 and 2002).

--- Thursday marks a double anniversary in the annals of recent bull and bear markets: The 2000-02 bear ended on Oct. 9, 2002, with the S&P 500 at 776.76. The bull market that followed ended last year on the same date, with the index at 1,565.15.

Comments

[LJR]

A. N. Whitehead lamented that many of our difficulties came from "misplaced concreteness." Calling this a "bear market" is a fine example. This, my fine friend (snark off) is an unprecedented credit bubble collapse that makes the depression look like an accounting entry error. So bringing out your rag tag Hulbertian statistics tricks only makes you look like another economic pundit with a five inch deadline.

Talk issues or be quiet - that's my advice. If you need a prime I'd suggest you read through Doug Noland's fine posts on prudentbear.com

[Roger Ramjet]

Bring on the bears baby! As long as you got EFU, SDS, SKU, and the Prudent Bear Fund. I could care less.......ps And great bargins galore, too!

[juan]

This is what happens when millions of future retirees pump their pre-tax dollars into the market in the form of 401k's and IRA's over a few decades. Much like a ponzi scheme. The more cash that lands in the market the higher it goes. Too bad everyone forgot that when the investment cash starts to dwindle, so does the market. I am still waiting for all the financial pundits to talk about the REAL coming crisis. What happens when all those baby boomer retirees start cashing out all those 401k's and IRA's? A sell-off that massive will be a blood bath. I guess, like most financial pundits, they don't want to scare anyone with real facts and figures that might lessen their very own portfolios. Very sleazy.

[A. M.]

The baby boomers will be gradually exiting the market over a 15 year period, many of whom will only get back in as it is the best way to invest. Unless of course they are uninformed, unintelligent, panic-driven idiots. Then they will pull out, take a loss, only to make room for the rest of us to buy buy buy up when it is low. Sorry, but the world is not stopping just because some baby boomers (not all) were invested or fear the market out of ignorance. It is not a ponzi-scheme! THE US MARKET IS THE STRONGEST IN THE WORLD.

[Fred]

Dear Juan,

This sell-off doesn't have anything to do with retirees funding the market. All, you have to do is look at the graphs. The market took off 4 years ago when the funny business began with mortgages and it began to go south when it that house of cards collapsed. The smartest guys in the room are 100% responsible for this.

And as for those retires, they don't have to take their money out. It has been taken out for them to the tune of more than $1 trillion.

[bill]

What it means to be in a credit bubble is that the economy as a whole was consuming more goods and services than it was producing. In other words, we were collectively living beyond our means, just as an idividual would do by racking up a bunch of credit card debt. How did this happen? I think there are two central reasons. First, the Fed kept interest rates low, so the cost of borrowing was cheap. Second, through the magic of credit defaul swaps, banks were able loan out money without having to worry about pesky cash reserve requirements. In other words, society got a low interest credit card with virtually no credit limit. So what happened is the same thing that would happen if an individual got such a card, we kept borrowing and borrowing until eventually, even with the low interest rate, we couldn't keep up. And then the bubble burst. And the banks said, we are not lending you any more money until you pay back your debt. And so that is where we are today, right at the beginning of paying back our collective debt. And the only way we can do that is to produce more goods and services. The problem is that the growth now has to come from our savings, because our credit is shot. And guess what, we don't have any savings. And so we tell the government to jump in and spend money to bail us out. The problem is that the government gets its money from taxes, and taxes will go down, because the goods and services we are producing will go down. Eventually we will get through this, but is it going to be in the next couple of months? Not likely, and if it is, it just means that we found a way to delay or spread out the problem In the long run, we can't consume more than we produce. Since we have consumed more than we have produced for a long time now, the only way back to prosperity pay off our debt by producing more than we consume. That's going to be painful for many no matter how you slice it.

[Patrick Hutchinson]

I totally agree that this is shaping up to be a bad bear market. I am optimistic however that those of us that are in it for the long haul can use this down market to our advantage and make some great returns in the money we're investing now!

[Maggie Knowles]

Fred wrote: "And as for those retires, they don't have to take their money out. It has been taken out for them to the tune of more than $1 trillion."
~~~~~~~~~~~~~~~~ Hi Fred, I heard a report yesterday that's it closer to 2.2 trillion... but who's counting, right?