As you can see, Bob Brinker clearly states that a cyclical bull market began in March of 2009. Obviously, he's nervous that it might be getting long-in-the-tooth. It's important to know that in March of 2009 when this cyclical bull began, Brinker was totally convinced that the 2008 mega-bear market was going to continue.
March 5, 2009 Marketimer, Brinker said: "This is, by far, the most difficult stock market we have ever seen....Due to the fact that the November 20, 2008 S&P 500 Index closing low failed to hold during the testing process, we believe a new bottoming process will be necessary for a sustainable market advance."
The bear market bottomed one week later, on March 11, 2009! So be cautious about trusting him to call the top any better than he called the bottom, even after having ridden it down fully invested.
David Korn, in his weekly newsletter published on January 14th wrote about the current cyclical bull market. David Korn wrote:
This bull market is now 3 years, 10 months and 6 days long. Is that considered a long bear market by historical standards? The answer is a definitive yes. According to Ned Davis Research, considered by me as the gold-standard shop for quantitative historical research on market history, there have been 33 bull markets from the beginning of 1900 until March 2009. The average length of those bull markets was 2.1 years. Only five of those 33 bull markets lasted over 3-1/2 years, and we are now at 3 years and 10 months. And of those five, three of those bull markets ended in a bad way, to wit: 1929, 1966 and 2000. So no doubt, we are long in the tooth by historical measures.
One side note on this discussion. As an amateur market historian, I pride myself on being precise and open to opposing view points and so I want to at least acknowledge that there are some who argue that the bull market is only 1-1/2 years old because the stock market declined more than 20% in October 2011. However, as I wrote in several special alert e-mails during that time, we didn't meet the technical definition of a bear market at that time which is a 20% decline on a closing basis. But we sure got close. On October 4, 2011, the S&P 500 during intra-day trading got down to 1074.77
which marked a decline of more than 20% from its prior peak; however, on that day the market rallied to close at 1.123.95 and therefore the October 3rd¹s close of 1.099.23 remains the ³correction² closing low just a hair shy of a bear market, but maintained its ability to elude bear market status if you measure it on a closing basis only.
Honey EC: Bob Brinker uses closing numbers only. He claims that the 2011 correction didn't quite reach 20%, so it wasn't a bear. The reason he does that is because he and his followers were riding it down and he didn't want to have to admit he missed another bear market call as he had done only 3 years earlier.
David Korn talks about presidential cycles:
Putting aside the issue of a second term, how does the stock market do generally in the first of the four years of a presidential cycle? If you look at the Dow Jones Industrial Average going back to 1833, Presidential election years have averaged 5.1%, but the year following the election has only averaged 1.9%. For purposes of trying to handicap what impact the election cycle has on the stock market this year, the probability of an up year during an election year has been 65.1% whereas the probability of an up year during the year following an election falls to 45.4%. Still, what does that tell us? That it is a little less than a 50/50 chance of an up year.
In more recent history, since 1961, the average return of ALL post-election years has been 7.5% going back to 1961. But when you look at how the post-election returns have been in secular bull vs. secular bear markets, the returns are very different. The average post-election return during secular bull markets is 20.3% vs. only a 1.6% return during secular bear markets.
In more recent history, since 1961, the average return of ALL post-election years has been 7.5% going back to 1961. But when you look at how the post-election returns have been in secular bull vs. secular bear markets, the returns are very different. The average post-election return during secular bull markets is 20.3% vs. only a 1.6% return during secular bear markets.
David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service. Copyright David Korn, L.L.C. 2013
You can request complimentary issues of David's weekly newsletter and the fabulous Retirement Advisor that he and Kirk Lindstrom publish: LINK
18 comments:
I agree:
Honeybee: "Honey EC: Bob Brinker uses closing numbers only. He claims that the 2011 correction didn't quite reach 20%, so it wasn't a bear. The reason he does that is because he and his followers were riding it down and he didn't want to have to admit he missed another bear market call as he had done only 3 years earlier. "
Remember the market is somewhat manipulated. Many people know others were looking for a 20% closing basis before they would buy so the smart money front-runs it and in this case turned the market up after a 21% intraday bear market but only 19% and change on a closing basis.
Honeybee: " I want to at least acknowledge that there are some who argue that the bull market is only 1-1/2 years old because the stock market declined more than 20% in October 2011. However, as I wrote in several special alert e-mails during that time, we didn't meet the technical definition of a bear market at that time which is a 20% decline on a closing basis.
Think of the mechanics...
Someone says I'll buy AFTER the market pulls back 20% in a bear market. How would they do that?
They would do this with what I call in my newsletter an "Auto Buy" which is nothing more than a limit order set ahead of time at your broker.
Using my method, an investor would set a buy limit order for SPY (S&P500 ETF) or VTI (Total Stock Market ETF) for 20% off their peak prices
Using round numbers for illustration, if the SPY peaks at $1,000 then they would set a "bear market limit order to buy" at $8,000.
It wouldn't matter what price it closed at. The bear market was where the buy orders show up (down 20.8% in the last one) and the market starts to move higher. (I actually track these numbers and update them monthly - on page 28 of my January 2013 newsletter.)
As you pointed out, usually those who say these don't count those "intraday bear markets" are those who were fully invested at the top and didn't have any cash to take advantage of the 21% intraday decline for the S&P500. I was a buyer during that decline and from what I sent you via email, you can see I was also a buyer during the 11% "correction" we had last year.
Hey Kirk, why don't you take the time to update you and Korn's Retirement newsletter sample. It is from 2011.
Reader
What are you talking about, Reader?
The Retirement Advisor, January 2013
In the January Retirement Advisor, Kirk and David wrote this about "junk bonds":
"JUNK BONDS
This past week, the average yield on high yield bonds fell below 6% for the first time ever according to a benchmark index from Barclays PLC. In an age of low interest rates, many investors salivate at the chance to get a yield of 6% and so high yield bonds have an allure. Many investors, however, don't fully understand the nuances of high yield bonds and the risks that occur with owning them individually or in a bond fond.
On Wall Street, a high yield bond is referred to in slang as a "junk bond" or "speculative-grade bond" or "non-investment-grade bond." In finance, these bonds are rated below investment grade and carry a higher risk of default or other adverse credit events, but typically pay higher yields than better quality bonds in order to make them attractive to investors.
While we would all like higher yields, we avoid recommending high yield bonds for the precise reason that we do not think the higher risk is worth the reward in the bond side for fixed income subscribers. If you have the time to recover and a stomach for this much risk, we prefer to take it on the equity side of our asset allocation."
Honey here: I do not agree with Kirk and David on this, but evidently Bob Brinker does. He sold all of his income portfolio holdings in the Vanguard High-Yield Fund.
SPY is paying about 2% dividends now and is still slightly below where it was in October 2007 (1565).
VWEHX is now paying about 6% and is a few cents above where it was in October 2007 (6.06).
It boils down to being alert to the economy tanking -- and knowing when the stock market is going to go bearish.
Even so, like Brinker was saying when he feared interest rates might rise, if you are only interested in the dividends and can sleep at night, the what do you care about NAV?
Honeybee: It boils down to being alert to the economy tanking -- and knowing when the stock market is going to go bearish.
OK. If you think you can do this, then why use bonds that at best only give you your money back with the 6% yield if held to maturity? Why not buy a stock that has the potential to double or triple with your "mad money?"
If you THINK you can time the stock market, then you should buy stocks with more upside when bullish. If you want to reduce risk, use a smaller percentage in stocks and keep the rest in SAFE fixed income.
David and I share a belief that you take a barbell approach to risk. Keep one side, your fixed income, very safe then take risk with equities. If you look at Brinker's 2008 Fixed Income Performance, you will see that ALL his portfolios lost money in 2008 when stocks went down. That was a year total bond market index fund went up over 5%. You really should want your fixed income side of your portfolio to act as a counter balance to the stocks... not move in sympathy (same direction) as the stock market.
Will Bob Brinker mention that the Dow and S&P are at five year highs and not far from all-time-highs. I'm pretty sure that he will be on Moneytalk tomorrow.
"Both the Dow Jones industrial average and the Standard & Poor's 500 jumped to their highest levels in five years Friday, the first time they've both done that together since late 2012. Even more importantly, both of these major market measures are steadily marching closer to all-time highs.
Following its 53.68 point gain Friday to 13,649.70, the Dow is now less than 4% away from its all-time high, notched in October 2007. The S&P 500 is 5.1% away, following its 5.04 point gain Friday to 1485.98.
Read more
Frankj -- minor typo in the newsletter sample, in the caption for the chart, it refers to a "500 day moving average" should be 50.
"David and I share a belief that you take a barbell approach to risk. Keep one side, your fixed income, very safe then take risk with equities."
How do you keep your fixed income portfolio "very safe" with such an approach.
You could invest in Treasuries or GNMAs which are "very safe" and still be exposed to a horrendous interest rate risk when rates go up...as they will.
Sbi34
I think one problem with fixed income is how to really keep it safe. Inflation is a huge problem, because as you age your personal CPI basket of goods shifts and unfortunately to a basket of goods that will likely vastly outstrip inflation (medical care, nursing homes, property taxes, utilities etc). Hence things like TIPs don't truly cut it as in theory they only keep pace with a generic basket of goods.
I was playing around(on paper) with the 10 year treasury strip for liquidity needs and invest the rest theory for some time, but it falls apart at such low interest rates.
As an aside, I really think it is unconscionable to force the elderly and others into higher risk investments in pursuit of yield.
Nothing like propping up the economy on the shoulders of the responsible and devastating their savings.
of that comment about fixed income was by tfb.
"As an aside, I really think it is unconscionable to force the elderly and others into higher risk investments in pursuit of yield."
They are not FORCED to do anything. Maybe they should have planned better for a low interest rate environment. Trees don't grow to the sky and NOBODY is guaranteed anything in this life.
Would you rather let the country sink into a depression while maintaining artifically high interest rates so the old folks don't suffer?
Sbi34:
"How do you keep your fixed income portfolio "very safe" with such an approach."
My approach is explained in both my newsletters. For more explanation, see "Kirk's Two Investment Letters - Which is Best for You?"
You could invest in Treasuries or GNMAs which are "very safe" and still be exposed to a horrendous interest rate risk when rates go up...as they will.
If you mean individual GNMAs or Ts bought directly from the treasury, then you are correct they are safe other than the ravages of inflation. Unless you are Apple(AAPL Charts and quote) with billions in cash to invest, you can do much better than individual GNMAs or USTs... The trouble is they still pay less than inflation.
TFB: I really think it is unconscionable to force the elderly and others into higher risk investments in pursuit of yield.
Agree. Artificially low rates are a TAX on savers little different than charging them a tax on what they have saved except this way you don't have to depend on them filing a tax return. Savers are financing the bailouts, recovery and obscene government spending for war, excessive salaries and excessive benefits that was never meant to fund the last 30 years of our lives. I know several "disabled" people drawing Social Security that could do some work if they had to plus I know many who got unemployment and treated it as a sabbatical then got new HIGH PAYING jobs when it ran out. But, who else would pay for it but those who saved all their lives? Certainly not the irresponsible who vote....
Thanks Frank.
"Artificially low rates are a TAX on savers little different than charging them a tax on what they have saved except this way you don't have to depend on them filing a tax return. Savers are financing the bailouts, recovery and obscene government spending for war..etc"
The low rates are not unique to the USA for whatever reasons you may conjur up in your mind but worldwide.
If rates were significantly higher elsewhere for the same degree of risk, that would be easy.
The low rates are worldwide and if the low interest rate environment is harder on old folks or other savers that is too bad but just one of those cyclicals we all go through.
Again, if people haven't planned for all interest rate scenarios that's just too bad.
Blair said..
The low rates are worldwide
Not true
From Global Government Bonds
10 year gov bonds
US 1.846%
Italy 4.114%
Huge difference.
Blair said..
The low rates are worldwide
Not true
From Global Government Bonds
10 year gov bonds
US 1.846%
Italy 4.114%
Huge difference.
Would you rather let the country sink into a depression while maintaining artifically high interest rates so the old folks don't suffer?
There is good reason to suspect that Obama, like FDR before him, has enacted policies that are inhibiting a recovery and healthful economy.
That aside, one of the reasons it is so hard for small businesses to get a loan right now is lending institutions do not want to lend money in such a low interest rate environment. It makes mortgagees difficult to acquire also. No one wants to tie up money for 7-10-30 years at such low rates. Most banks are doing the smart thing, taking the “free money” from the Fed and investing it in other interest bearing securities and using their bank capital positions to take on abit more risk. In other words they are getting out of the lending business and are now effectively in the debt security business, and business is good.
tfb
You have to love Brinker. By listening to him, you might think his portfolios made oodles of money. A 3 year bull market gaining 100% doesn't mean much if the two years prior to the Bull market, it lost 50%. I make money by not following Brinker's advice.
Mark
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