"Those who can not remember the past are condemned to repeat it." Among the investors this aphorism of philosopher George Santayana is so well known that, in practice, either.
Especially when the markets give satisfaction, because they rise - as it is happening again from 15 March, when the Federal Reserve orchestrated the rescue of investment bank Bear Stearns - the ability to move away from current and "remember the past" becomes a rare virtue.
That this is so is back to let me present, so a little 'light-hearted, the latest weekly commentary John Hussman, one of the best managers and American analysts.
Deja vu
In an article titled Deja vu , published Monday, Hussman begins with what appears to be a synthetic description of the current state of the market.
- the S & P 500 index that after declining from the maximum of 20% has recovered half of its losses;
- the risk of recession always present but in the U.S. economy where the unemployment rate is just half a point worse than the peak of the cycle;
- the volatility and credit spread falling sharply;
- the renewed optimism analysts.
summarize the situation in one sentence, "all suggest to investors that the worst is over, thanks largely to the action of the Federal Reserve."
But really talk about today? What a mockery, this Hussman! No, what he cites is his comment January 2001, which ended this way:
"Everyone seems to think that thanks to the Fed, the market has already bottomed out and that the economic slowdown is now old news . We are skeptical. "
" [...] We think the economy is at the beginning of a cycle of deleveraging (ndr, expansion financed with loan capital). Investors who believe the omnipotence of the Fed have clearly forgotten expressions such as "liquidity trap" or push with a rope, which economists use to describe the inability to stimulate economic activity with the easy credit when spending is stagnant. This is what will happen. "
Hussman, then as we have seen, he was right.
The bear market, an ugly beast
the vigorous recovery of the Stock Exchange in January 2001 followed - using the yardstick of ' S & P500 - a rapid decrease of 19.7% through April, then another bear market rally of 19.0% between April and May and hence a fall of 26.4% up from the lows of September, after the attacks on the Twin Towers and the Pentagon.
The Fed said the shock generated by the madness of the terrorists with a further, large injection of liquidity and investors regained confidence, pushing the S & P 500 rising by 21.4% up in January 2002. The market then fell by 7.9% between January and February but recovered with an advance of 8, up 3% in March.
happened here another collapse, with losses of up to 31.8% in July, followed by a furious rally by 20.7% between July and August. But the story was not over. The last act was a fall of 19.3% to minima in October 2002. the bear market ended, after this succession of falls and breathtaking lift, duration over two and a half years, with a loss overall 49.1%.
read and reread the percentages of movements of the primary bearish trend and the upward revision is a useful exercise. It gives depth to our understanding of what a infida creatura sia un bear market, più di quanto non faccia la consueta visione di sintesi, condensata ad esempio nel grafico decennale che segue, a cura di Barchart :
Qual è, dunque, la lezione che ci viene dallo studio del passato? La riassume bene Hussman :
“Gli investitori davvero non hanno capito nulla delle dinamiche del mercato se credono che un bear market associato a condizioni recessive dell’economia comprenda un unico ribasso del 20%, o anche meno, seguito da un rimbalzo a forma di V che porta a un nuovo bull market.”
Non è così che funziona la psicologia collettiva, it is not evolving economic cycles, it is not moving the stock. I already wrote in my post stock markets and the risk of recession . But it bears repeating.
If you are all ' S & P 500 since 1950 there have been 16 bear market with decreases exceeding 15% (excluding the current one, which we know the beginning but not yet the end). Nine of these have coincided with a recession U.S. economy (traditionally if somewhat simplistically defined as a period of contraction in GDP, which comprises at least two consecutive quarters).
The bear market with no recession sono durati in media 215 giorni (poco più di sette mesi) con cali contenuti tra il 15% e il 25%; quelli con recessione si sono prolungati per 491 giorni (oltre 16 mesi) con esiti molto più variegati e imprevedibili.
In alcuni casi, le perdite sono state non dissimili da quelle dei bear market senza recessione, ma in altri casi, come nel 1968, 1973 e 2000 – quando le Borse erano caratterizzate da una forte sopravvalutazione – hanno superato, anche di molto, il 35%.
Qualcuno obietterà: dov’è oggi la recessione? Dov’è la sopravvalutazione?
Prima di rispondere vale la pena notare che, in ogni caso, ritenere che il bear market iniziato Wall Street in mid-October has been exhausted with the double-dip (see chart below by StockCharts ) recorded in mid-March - just five months later - is not very responsive to the typical profile of "bear markets of the past - even the most benign.
To hear the optimists today, in fact we are dealing with a bear genetically modified, a new beast, whose alleged sighting should command - in any prudent investor - a healthy skepticism.
The event, of course, is not impossible but until proven otherwise be considered unlikely. To be explicit, hours of betting money on the proposition that the bear market is over in March is a gamble, un'avventatezza.
Bear market and recession
If we then consider the situation , as I wrote in post U.S. economy, the risks of recession remain high , the interpretation that the most they have given Recent U.S. macroeconomic statistics surprising as it is superficial, misleading, wrong.
sins of excess optimism that already has led me in recent days to re-enter among my priorities - as an investor - an assessment of ways and times for the possible purchase of equity index put options (a strategy which, as I wrote in this blog, I tend to use to hedge my portfolio at times when I think there is a significant risk of substantial discounts).
to what I wrote in that post I would just add that in January 2001, few believed that the U.S. economy was headed toward a recession.
The economy began to contract two months later, but it was clear to the great mass of observers only much later and after countless revisions of official statistics.
Just as an example, Ben Bernanke, now head of the Federal Reserve and then the head del dipartimento di studi economici dell’Università di Princeton, fu in grado di reiterare il convincimento che una recessione sarebbe stata evitata addirittura nell’agosto. A quel punto, la recessione – iniziata, come poi si capì, a marzo e conclusasi a novembre – era prossima più alla sua fine che al suo inizio.
Tra quanti riuscirono a capire, a inizio 2001 - nell’ottimismo che ancora pervadeva i mercati – che gli Usa erano già in “territorio recessivo” vi fu naturalmente John Hussman . Ma vi fu anche l’ Economic Cycle Research Institute ( ECRI ) di Lakshman Achuthan e Anirvan Banerji , the most prestigious research centers that seek to identify business cycle turning points.
What do you think it's early today Hussman said. The comment ends on Monday in explicit terms:
"Aside from the belief that, at present, the risks are not as full bodied as potential reductions in 2000-2002, for the rest of my assessments of the current cycle are fully in line with what I expressed at the end of bear market rally in January 2001. "
"For the first time in history, ' household debt exceeds GDP (editor's note, see chart below by Ned Davis Research , with the progression from 25% in 1952 to 102% today, and, in particular, the explosion of the last decade due to the swelling of the housing bubble) , while the total debt in the U.S. economy is equal to 350% of GDP. "
Continue Hussman: " Taking into account that the delinquencies on real estate part of that debt is increasing, and that the compression of the profits will also risk the service charges by the companies 'marginal', it is difficult to share the optimism of many analysts about the possibility that the difficulties existing investors will end up being free to leave. "
" [...] It's not that the amount of the debt is, in itself, especially sensitive to recessions. Rather, As the economy slows, the burden of debt that tends to amplify its effects by imposing spending cuts, employment and investment. "
short, simple terms, the point is that with the 'U.S. economy now stops there maneuver on interest rates that can quickly restore momentum to the demand in the presence of a load of debt so oppressive.
Nor can it be a decisive fiscal stimulus like that devised by the Bush administration and approved quickly by Congress, in an amount which, with its 117 billion dollars, is presented as a drop in the ocean of liabilities.
dynamics prevalent now that growth has been slowly strangled, is that the huge debt burden - which leads to the contraction of economic activity.
As for ' ECRI, is expected to be several weeks that a recession, as is also the last weekly update of his Leading Index (leading indicator of the cycle), made public Friday.
Although it has risen from a minimum of 14 weeks ago, the indicator, as reported by one of Reuters dispatch , "remains heavily in negative territory, suggesting that the prospects (editor's note, the U.S. economy) are still recessionary. "
What is a recession in the U.S. because there is already
A article Achuthan and Banerji , appeared last week on CNNMoney , adds a bit 'of useful context.
The two co-founders of ECRI remember, beyond the simplistic definition based only on GDP , what is essentially a recession :
"[...] A contraction in economic activity that tends to self-reinforcing, when a decline in expenditure leads to cuts in production and, consequently, in the workplace, and this produces a loss of income that is spreading throughout the country, from industry to another, weighing negatively on sales and, consequently, of new production, in what is revealed be, in effect, a vicious circle . "
It follows that the accurate statistical definition of a recession can not be entrusted only to the data on GDP or industrial production, but must include the labor market, income, consumption, all oriented - in a spiral - downward.
When these factors tend, in concert, to contract so "pronounced, pervasive and persistent" , there is a recession.
What is the current situation?
"GDP still is not decreasing - write Achuthan and Banerji - but already there have been four consecutive months of decline in employment . And this suggests that the economy is passing into recession . Implies that at least one of the last two quarterly estimates of GDP, which were slightly positive, and perhaps both, will be revised and corrected data is negative within the next year. Or, we'll see one or two quarters of negative growth in GDP during the rest of the year. "
" While the final determination of recession might have to wait at least another year, the fact remains that our leading indicators are not have never been so weak, if not during a recession. "
Bear market is overvalued
Let me conclude with a reference to fundamental question of market valuations.
We have seen, in contesti di sopravvalutazione e in concomitanza con recessioni economiche, i bear market azionari assumano proporzioni devastanti: lunga durata e crolli degli indici compresi – come nel 1968, 1973 e 2000 – tra il 35% e il 50%.
Non so, ovviamente, se sia proprio questo l'esito che ora ci attende. Ma è chiaro che le Borse restano, in una prospettiva di lungo periodo, fortemente sopravvalutate .
Ho già più volte citato gli studi di Andrew Smithers , e spiegato il significato che va dato ai parametri di valutazione che lui utilizza, il q e il CAPE ( Cyclically Adjusted P/E ).
Non mi ripeterò, limitandomi a fare riferimento ai post I multipli di Borsa restano elevati e Sul cattivo uso del P/E e il P/E normalizzato .
Vorrei qui aggiungere solo l’ultimo aggiornamento del grafico che Smithers pubblica sul suo sito e che raffigura la serie storica delle sue stime su q e CAPE.
Sopra la linea dello zero, il mercato (indice S&P 500) è sopravvalutato rispetto al suo valore medio di lungo periodo, e viceversa. Come indicato, l’ultima stima si riferisce a dati aggiornati al 31 dicembre 2007, quando l’S&P 500 shares 1468 points - a 6% above current levels. At that time the
U.S. stock market was overvalued by 71% based on P / E adjusted for the cycle (CAPE), while the non-financial sector, according to q (which can not be calculated for financials) was overestimated by "only" 17%.
As the chart makes clear Smithers, these levels of overvaluation have few (if q) or no history (in the case of estimation based on CAPE) outside the period of speculative madness at the turn of 2000.
The bear market does not end with Bear Stearns
As is also clear, history tells us that cycles of euphoria and excessive overstatements have systematically followed protracted phases of pronounced depression and underestimation.
So, to sum up, the clues seem to be converging to me and lead me to think that, as in January 2001, the equity bear market is now far from being exhausted. Better
therefore be wary of those - and there are many - are arguing that the rescue of Bear Stearns in mid-March, the Federal Reserve wrote an end to the credit crisis and, consequently, the winter of markets.
The Fed is not omnipotent. And Bear Stearns did not make a summer.
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