Monday, February 25th, 2008: Although the important Dow Industrials and S&P 500 haven’t dropped -20% off their October bull market peaks -- they’ve dropped -18.1% and -19.4% respectively, intraday peak to trough -- I continue to call the last four months the start of a new bear market. Indeed, 45 different global stock markets have fallen more than 20% and here in the US the Nasdaq composite and S&P 600 Small Cap have lost that much as well.
Still bear markets don’t go down everyday or every week or even every month. There’s always “… a trade off between magnitude and duration” as Ken Fisher wrote in his 1987 book The Wall Street Waltz. Just meaning that when things go wrong in the economy they just can’t resolve themselves with a quick point drop alone as financial glitches many times can. Economic problems like today’s housing bust takes time to wend through. Two years into this bust we still have about a year’s worth and a record of over supply of houses selling at much higher prices than the average guy and gal can afford anymore, while banks, after booking billions in losses over the last few months, are just not willing to loan anymore money. In fact because of the huge losses and resulting outcry banks have now tightening up their lending standards which will exacerbate our problems near term. One major long term result of “Greed Gone Crazy” is going to be re-regulation which is always bad for the stock market.
And in the very near term, the stock market has something to exciting to talk about kicking off a new week, the possible cash infusion of Ambac, one important linchpin insurer. Schwartz View: Whatever happens to Ambac and MBIA, that business is in disarray and will end up with additional regulation and to me is just one minor event in what promises to be a long and severe bear market. Any bounce could give traders the chance to short the market on strength. For now, I continue to see an extended bear market in stocks ahead reflecting poor conditions in the economy which are still getting worse, not better