Monday, August 17, 2015

An Aging Bull Market Headed For The Dumpster - Are You Ready?

A subset of the 23 Bull Markets and their durations in days. The longer the Bull Market the closer it gets to its expiration date.

Jason Zweig, he of the "Intelligent Investor" column of The Wall Street Journal, had some excellent advice for those still in the stock market: buckle up and hold on. Zweig begins by asking if people recall that between October, 2007 and March, 2009, the U.S. stock market dropped in price by 57 percent. It was a time of angst as 401ks were wiped out left and right and victims had to either notch down their retirement plans, or plan for longer working years.

Zweig then adds, with little consolation:

"If you think stocks can't fall by at least 50 percent again you are wrong. ...And if you think you won't over react when it does you had better test that belief now before it's too late to find out you were kidding yourself".

This isn't just blowing smoke or sparking reckless jitters. Anyone who knows anything about markets knows the existing Bull is already breeding a monster asset bubble just right for the bursting. And let's not forget it was George P. Brockway in his 'End of Economic Man' who noted that all Bull markets end and most do it in spectacular crash fashion with ordinary investors the ones most often left without the shirts on their backs. The more inflated the asset bubble underling the Bull, in this case fed by QE 'crack', the bigger the crash. Nate Silver in fact already pointed out two years ago how this one is in dangerous territory given the 21 % increase at that time.

Now, new research, based on Bull lifetimes, shows they can be seen in terms of comparative human life spans. And we know the older a human gets the closer he is to croaking time.  According to Michael Ball of Weatherstone Capital Management (Denver Post Business, Aug. 12,  p. 13A), the current bull market run (in days) is equivalent to an 88.3 year old person.  Let's face it, that's pretty close to 'kick the bucket' time.

As he put it (ibid.):

"We are very late into a normal bull market life span. Problems will come up sooner rather than later."

As may be seen from the attached graphic, this bull market at 2,262 days already ranks as the fourth longest in modern history.  By comparison, the bull that led to the stock market crash of 1929 lasted for 2,932 days (equal to 94.4 human years). On the more encouraging side, that bull saw a 497 percent gain in 8 years, while the current one has seen a 180 percent gain in 6 years. Maybe, indeed, we should hope for a correction soon - which could come as soon as the first Fed interest rate increase.

But other factors are also weighing on the stock market including slowing global growth, declining corporate  earnings and rising bond yields.  Stock valuations, as gauge by the P/E or price to earnings ratio are also way too "rich", having already crossed into the top 10 percent of bulls.

Who are the most likely to 'take a bath' when crunch time hits? Ball points out a certain subset of baby boomers who haven't been content with the low yields from pedestrian savings instruments like money market funds and have exposed themselves much more in risky equities. Of course, indexed funds (like those of Vanguard) are always a safer bet than managed funds, but in a major correction or crash of 50 percent or more, no one's money will be safe.  If you have a half mil tied up in the markets can you afford to lose $250,000?

Ball also notes that those investors who've already been mauled by two bear markets in 15 years won't easily be able to wait out this bull to see if it turns into a bear. They may have to redeem early, take their money and run as it were. Probably a better choice than having to eat cat food and kibbles the rest of your days.

Ball's final parting words for anyone who wants to hear them?

"It's a prudent time to take some money out of stocks."


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