Picking the Market Bottom - June 2009?

[Bushman]

It seems that the US market is pricing a fully-fledged recession. Off course it will be up to the National Bureau of Economic Research (NBER) to formally call a US recession, but I am tipping that this 'recession' will become statistically apparent by the end of this December quarter.

So does this finally give us clarity of when we might expect a market bottom for equities in the US (and, by default, that little old Aussie symbiotic beasty called the ASX)?

Consider the following bit of research and, in particular, the graph that tracks the S&P 500 performance vs the recessionary business cycle (the source is quoted in the article extract) :

'Pattern consistencies
Where there does appear to be more consistency is with the pattern of returns for the market around recessions, if not the magnitude. As you can see in the chart below, which combines all of the 10 prior recessions into a single average line, the market has typically peaked about seven months before the recession begins, but bottoms quite decisively by about six months into the recession, with an average peak-to-trough decline of just under 25%.

S&P 500 Performance Pattern Around Recessions
View attachment recession.bmp

Indexed price-only data from 1947-March 31, 2002. Source: Ned Davis Research, Inc.
In fact, some of the best bear market bottoms and/or historic buying opportunities have come during the depths of recessions. Note in the table below the performance averages for the market during various periods following stock market troughs in recessions.'

So, given that we are due to be at the start of humdinger of a US recession by January 2009, does this mean we can expect a 'decisive bottom' around June 2009? That will be at the height of 'real economy' phase of this gawd awful 'credit crunch' ie unemployment @ 8%, business insolvency ups, property valuations bottom etc.

What do people think?

My view (long-term strategy only):
Contrarians/perma bulls will be buying now, sophisticated investors will be buying March/April and institutions will know the extent of the down turn and buy up mid-next year. Ma & Pa will still be hiding under their beds until the bull is re-stablished sometime in December 2009/January 2010.

So bottom will be June 2009. Oh boy...

 

[son of baglimit]

good valid arguments, BUT.......

in this 'i want it and i want it now' world, i suspect volatility will become a way of life from now on - not necessarily to this current level always, but certainly more than historically. more folks able to trade instantly with more products creating larger gains/losses than ever before.

so while the recession itself may linger on for many quarters, i expect the market to soon pull out of this mess and begin a move up, but with violent pullbacks too.

 

[Garpal Gumnut]

Agree with above.

Bottoms are bottoms.

They should extend and have dips.

When they decide to head north gain, then is the time to get in.

Best to wait.

This may not be the bottom.

gg

 

[rub92me]

I think what we see unfolding now is of an entirely different magnitude than what is used in the comparison/analysis (i.e. post WW2 recessions). I think We may see a temporary bottom in the next 6 months and mostly sideways after that for a while before we get the real shocker. I.e. more like the 1929-1932 scenario.

 

[Ageo]

I think what we see unfolding now is of an entirely different magnitude than what is used in the comparison/analysis (i.e. post WW2 recessions). I think We may see a temporary bottom in the next 6 months and mostly sideways after that for a while before we get the real shocker. I.e. more like the 1929-1932 scenario.

Im in line with you, im waiting for the market to prop up to 5000 or above before i look for some shorts....

 

[drsmith]

Something about a smelly finger comes to mind here.

Sorry
Saw the thread title and couldn't resist.

 

[Glen48]

More false bottoms than Elton John's walk -in -robe. I agree this is like no other recession, most recessions don't have every thing going down and down as much as they will do.
It won't boom over night but a gradual increase about 2011+

 

[jonojpsg]

Agree with above.

Bottoms are bottoms.

They should extend and have dips.

When they decide to head north gain, then is the time to get in.

Best to wait.

This may not be the bottom.

gg

It's not the bottom, that's the point Gotta wait another 9 months

 

[Geoff]

Something about a smelly finger comes to mind here.

Sorry
Saw the thread title and couldn't resist.

My monitor almost wore my tea :

 

[Gundini]

good valid arguments, BUT.......

in this 'i want it and i want it now' world, i suspect volatility will become a way of life from now on - not necessarily to this current level always, but certainly more than historically. more folks able to trade instantly with more products creating larger gains/losses than ever before.

so while the recession itself may linger on for many quarters, i expect the market to soon pull out of this mess and begin a move up, but with violent pullbacks too.

While I believe every post in this thread has merit, the post above is more in line with my thinking. And it just might be unexpected inflation figures that cause the volatility.

I still have access to heaps of credit, and I am sure I am not alone.

Interest rates are throwing free money to stimulate, hand outs everywhere, unemployment increasing, massive job loss's, printing money, etc...

Inflation, or Deflation should keep the market volatile for quite some time.

Short to mid term traders may benifit for a while yet IMO, but nobody can be certain what the effects of this crunch will be?

I will be putting up a bigger fence to keep univited opportunists at bay, that is on the to do list as we speak!

 

[pontiph02]

Recessions (according to National Public Radio's "Planet Money" podcast, which I assume has been mentioned elsewhere on this site) are declared after the fact by the NBER, so in December they might declare that the economy has been in recession for six or nine, or three, months.

I think this recession started in the beginning of the July quarter this year at the latest. Spookily, the market peaked seven months before that (Oct/Nov 07). By my calculations, six months into the recession is...very soon.

Wow, day 1 on the forum and post 1. Generally I'm much more of a lurker than a poster, so expect to hear from me again in a year or two.

 

[Bushman]

Recessions (according to National Public Radio's "Planet Money" podcast, which I assume has been mentioned elsewhere on this site) are declared after the fact by the NBER, so in December they might declare that the economy has been in recession for six or nine, or three, months.

I think this recession started in the beginning of the July quarter this year at the latest. Spookily, the market peaked seven months before that (Oct/Nov 07). By my calculations, six months into the recession is...very soon.

Wow, day 1 on the forum and post 1. Generally I'm much more of a lurker than a poster, so expect to hear from me again in a year or two.

Nice post ponti - keep posting mate.

Yes I was not sure if the tipping point was from the date a recession is declared versus a date that the US economy was in recession. It has been in a housing-sector recession since early last year for instance.

I am looking for unemployment to tip over 300,000 job losses for my bottom - last count 240,000 in October.

To a degree I do agree with all those who subscribe to the 'this time it is different' mould. Housing 'bubbles' bursting have always had double the impact on GDP than equity 'bubbles' and typically the 'real' economy takes longer to recover. We also have had a whopping great old banking panic to boot. For those who are interested in the impacts of the two, have a read of the following IMF report published after the tech wreck. View attachment When Bubbles Burst IMF.pdf

Also remember all the 'perma bulls' (myself included - sigh) who said 'this time it is different' on the way up. It is never different IMO - all that is different is the length of time of the bust, the recovery and the bull. The structure remains the same.

I will stick to June 2009 for the moment but it is very fluid so I will give myself a margin of error of +/- 3 months. Is that cheating?

 

[Bushman]

PS: as an aside, have a look at whose research papers the authors of the IMF report quote - Helicopter Ben Bernanke himself!

 

[Bushman]

Gold up, bonds down, dollar down .... so equities up?

Given the US has been in recession fro 12 months and the unemployment numbers in November hit 500,000 (incredible), I am tipping a January rally. Not sure if it is a bear market rally or a true bottom though? All depends on the 'fiscal stimulus' now. However the credit crunch shoud start to ease from here; hence the first inklings of inflationary pressure.

Ha

From Marketwatch:

Dow Theory Letters' Richard Russell thinks it might be. He writes: "We may now be hitting the inflection point that I've been talking about. The selling of stocks could be exhausted, the deflation may be on the edge of turning into inflation -- today bonds were down, dollar was down, gold up strongly. The Bernanke-Paulson "re-inflation" efforts may finally have halted the fear and deflation syndrome -- now the trillions of dollars that have been introduced into the system may be close to setting off inflation. I said that the first hint of the change would be rising gold and declining bonds. We may be there."

 

[Bushman]

A contrarian view - we've had enough 'blood on the streets'.

Comment about local currencies springing up in the US is interesting. Local merchants efforts to beat the cash shortage. Good for them too - gawd awful banks.


http://www.financialsense.com/editorials/droke/2008/1217.html

 

[Bushman]

December US non-farm payrolls decrease (to be released on Friday) are tipped to hit 700,000!!

This would be the biggest decrease since WWII.

That has to be the bottom of the labour market deleverage? I am tipping yes.

So, there is one more leg down to go as analysts adjust earnings forecasts for 'spiralling' unemployment. Then it is a Obama 'New Deal' (trillion dollar deficit anyone) money supply, low oil price, low interest rate inspired rally for the rest of 2009.

My 2c ... actually it is now worth 1c!

 

[Lucky_Country]

Well I have to agree that we are close to the economic bottom in the US but not in AUS.

The equity markets have already priced in the worst recession in decades and now people are seeing value in equities.

Would be fearful of a slowdown in the Australian housing market and jobs market over the next 6 - 12 months.

 

[Bushman]

The media are talking up a depression, that's for sure. This is a study of US press articles that mention the words 'great depression'.

View attachment Talk of depression 08.pdf

The more they talk it up, the better from a contrarian point of view. They were the same chumps who were talking up global growth 18 months ago. Then again, this time the stories are closer to reality. But when taxi drivers start telling you to buy government treasuries and gold, get out of the bunker.


Source: Bank Credit Analyst Research.

 

[gfresh]

Commodities seeming to make a bottom..

Oil seems to have found a bottom...

Many stocks I hold are at the same price as 3 months ago, even with several 3-4% daily falls in the indexes

Yields on US 2/5/10/30y T-bonds rising, as bonds are sold off

Gold rising on expectation of inflation-spiral during recovery?

Maybe this is all a short-term sense of confidence before the further storms.. but I have a feeling futures traders are looking more forward than backwards right now.

You could be onto something Bushman..

 

[CanOz]

It appears as though the S&P 500 has already put in two significant lows. The question is, how long will the rally last? If the S&P 500 rallies the dollar will tank and commods will go higher.

CanOz