Something Bulls and Bears Can All Look Forward To
History shows that the market will spread the love.
The big debate is always between the voracious bears and the raging bulls and about the future direction of the stock market. The bears are convinced the market is going to plunge, while the bulls believe we're entering a long-term bull market. So investors and traders are left asking: Who's right?
My answer is that we're going to plunge soon, and then reach a secular bull market much later. Now let me explain by using history and price as our guide.
Our banner here at Coby Lamson Capital Management is: "Price is Truth". My partner, Denny Lamson, explains why price is truth in this way:
Everything known, thought to be known, hoped for, or feared by those who care enough about any given stock, bond, or commodity to put their money at risk, synthesizes into one thing… the current price.
Regardless of what you believe the driving the price is; you must regard price as truth and yield to it. Let me give you an example of what I mean:
The 2009 stock market currently has an 89% correlation to the 2003 bull market and an 83% correlation to the 1995 bull market. Those were my two best years as a fund manager primarily because I saw extreme bearish sentiment and the prospects of a healthy recovery.
Early in the year I saw the bearish sentiment, but simply couldn't see the prospects of a healthy economic recovery. I still can't. But who cares what I think? The stock market certainly didn't.
My opinion may have been right about the economy, but it was irrelevant to both price and trend. As I have said, the bottom line to success is letting price be your guide because price is truth. All else is simply commentary and opinions.
The 1995 bull market started at the end of a Federal Reserve interest-rate-raising cycle. At the end of that cycle, most companies had both terrific fundamentals and awesome basing stock charts.
In the 2003 bull market, Nasdaq had just completed and repeated the 1929-32 Dow Jones Industrial Average (DJIA) crash -- both in price and time. Extending the timeline further, I'm going to show you how our current market is repeating the crash of 1938 and its subsequent rally. (If I'm right, the bears will have something to look forward to in the near term, and the bulls will be happy in the long term)!
In March 2009, we had the most oversold stock market in history. We also had the highest number of bears ever registered on the American Association of Individual Investors poll.
Sentiment was clearly there for a bounce off the March 2009 lows.
However, the country is covered in both public and private debt of unprecedented levels. The United States is also in a real-estate depression that's unfolding and imploding right before our very own eyes.
In my book, Discover the Upside of Down, there's a chapter titled "Boomtown to Ghost Town" where I explain how this real-estate depression could cause an outright economic depression and stock market collapse with effects very similar to the 1930s.
Here's the comparison: Like 1929, 2008 saw a volcanic market eruption which has resulted today in a lava flow of deflation, similar to 1930. The 49% stock market crash in 1929 was very similar to the 54% "slow motion crash" which took place from October 2007 to March 2009. Our recent explosive rally is also comparable to the 47% five-month rally of the DJIA in early 1930.
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