Wednesday, September 15, 2010

Analogs part 2

In today's column i compared 2010 to 2004. Although I say so in the piece, it would not hurt to emphasize that the economic and fundamental backdrops of the two years are radically different. And back then I was not still looking for a debacle in stock prices, either.

Just to be clear, I am still a bear. The article talks more about timing - and that timing for a tradeable buying opportunity is not here yet.

Sy Harding of the Street Smart Report sees similarities between 2010 and 1992. Here is an excerpt from his Sept 10 free email distribution:

The current similarities to the fall of 1992 are not confined to the similar surrounding economic conditions and fear in the stock market, but also to historical seasonal patterns, and even the political situation.

In November, 1992, a Democratic president was elected for the first time since 1977, succeeding a previously popular Republican president, George Bush Sr. President Bush had become unpopular by re-election time, as a result of the difficulty his administration was having pulling the economy out of the 1991 recession. In another eerie similarity, that recession had been the result of the bursting of a real estate bubble; a serious collapse of the banking system (almost 1,000 banks had failed and had to be taken over by the FDIC); and federal budget deficits that were at near record highs. The budget deficits in turn were the result of economic stimulus efforts, and the costs of the Desert Storm war to drive Saddam Hussein’s Iraqi forces out of Kuwait.

Similar to the situation of our current president, the new president in 1993, Bill Clinton, became increasingly less popular as his efforts to revive the economy seemed to be taking too long, while he seemed to put too much effort into side issues like attempting to reform healthcare.

However by 1996, contrary to the fears of 1993 and 1994, the economy was recovering dramatically, and the stock market continued in what would become the longest and strongest bull market in history. Some of the economic highlights included the record budget deficits that were sure to bankrupt the country being reversed to significant budget surpluses.

Is it possible the present similarities to the early 1990’s could continue?

No one thinks so right now. The current opinion is similar to that of Time magazine in 1992, that the “once in a lifetime dislocations will take years to work out.”

I sure don’t have a crystal ball that’s tuned to look out five or ten years.

But I have been saying for more than a year that the market should see an important low in the October/November time-frame this year, followed by a dramatic rally of 50% to its high next year. That expectation of a further decline from here, followed by an important buy signal, is based on indications that the degree of economic slowdown has not been fully factored into stock prices, my belief that it’s still too early for the market to anticipate an improving economy six to nine months out, the market’s annual seasonality, and the history of the Four-Year Presidential Cycle.

End quote

I am not one to talk about the funnymentals but Sy and I do agree that we may see a nice buying opportunity later in the year.

1 comment:

Harris said...

Interesting analogy. One notable difference is Globalization was a theory in 1992 but a reality now. What are not "emerging markets" were then third world countries (even fourth world) and a place more likely to generate dysentary than investment returns. So maybe Mr. Harding is on to something...