Bear Market Bottom or Bear Market Rally?
Posted
Mar 12 2008, 01:36 PM
by
Richard Schwartz
Bear Market BOTTOM or Bear Market RALLY? I say a bear market rally. But it may look solid enough and get investors excited enough to really rally the stock market for some time. And if all the upside doesn’t come too fast and furious, say yesterday’s big gain of +417 Dow points, followed up today and tomorrow by additional gains of 300 and 400 points each, then it may be playable. Still, the chart pattern shows another V bottom, not usually the kind of bottom we can count on. In fact January’s bottom was also in the shape of a V and it ultimately didn’t hold.
- Today Similar to 1982? Looking back, the closest past event I can figure to today -- if the Fed has really broken up the logjam of millions of dollars of bonds with no prices stuck in institutional portfolios -- is August 1982. Back then Federal Reserve Chairman Paul Volker changed interest rate policy, he started loosening rates after previously tightening us into a bad recession as he worked to break the back of long entrenched rising inflation. And stocks blasted off and this government change of ground rules. It was a powerful tour de force by Volker. The dye was cast for many years of lower interest rates, lower inflation and a working off of the excess capacity built after many years of runaway inflation. So we have a past precedent where a financial crunch ends after the Fed changed policy. Schwartz View: Reminiscing a bit, I was around for that 1982 Fed move, as a stock broker or maybe we were called financial consultants by then, but I wasn’t studying the stock market yet. I do remember a cocktail party in 1980/81 where we discussed the futility of trying to save for college when inflation was so high and was meeting with clients and matching up financial products with financial needs. Hmm, I didn’t start this letter for eight more years or until September 1990. Anyway, moving on …