Bear Market Update - Down 53% from the Peak

The statistics and charts below show the S&P500, DJIA and NASDAQ are currently down 52%, 48%, and 54%, respectively from the top.

Don't be fooled by any new "buy signals" or talk from Bob Brinker saying he is working to "identify a bottom" in this bear market. Bob Brinker was wildly bullish at the top. He had his "balanced Model Portfolio #3" 66% in equities at the top while his Model portfolios #1 and #2 were 100% in equities at the top with "dollar cost average" new money except for several "buy levels" where he advised putting it all in at once.

He also told his subscribers who had any "new money" that the mid 1400s was a "gift horse buying opportunity." About a year ago in his December 5, 2007 Marketimer newsletter with the S&P500 at 1481, Bob Brinker wrote:

“The short-term correction that began in October and continued into November has served as a health-restoring pullback and has paved the way for new record highs in the S&P500 index”

and

“Marketimer subscribers have been able to add to positions on this short-term correction based on our recommendation to view the stock market as attractive for purchase on any weakness into the mid-1400’s range.”

and

"We continue to believe that a bear market is not on the radar screen at this time. We expect the bull market to continue at least well into 2008, and look for significant stock market gains."

Finally, he wrote

“We continue to rate the market as attractive for purchase in the mid-1400’s… Any additional weakness below this range is regarded as a gift horse buying opportunity.”

Needless to say, Brinker rode a 53% (so far) bear market down fully invested with no cash raised via profit taking at the top to buy equities now that they are 50% off.


2007-2008 Bear Market Statistics 11/23/08

S&P500 Chart

Last Market High 10/11/07 at 1,576.09
Last Market low 11/21/08 at 741.02
Current S&P500 Price 800.03
Decline in Points = 776.06
Decline in percent = 49.2%
Max Decline = 53.0%

=>This means the decline from intraday high to intraday low is 53.0% and we are currently 49.2% off the peak.
=>The decline in the S&P500 from the closing high to the closing low was 51.9%

DJIA Charts

Last Market High 10/11/07 at 14,279.96
Last Market Low 11/21/08 at 7,392.27
Current DJIA Price 8,046.42
Decline in Points = 6,233.54
Decline in percent = 43.7%
Max Decline = 48.2%

=>This means the decline from high to low has been 48.2% and we are currently 43.7% off the peak.
=>The decline in the DOW off the closing high to the closing low was 46.7%

NASDAQ Charts

Last Market High 10/31/07 at 2,861.51
Last Market Low 11/21/08 at 1,295.35
Current NASDAQ Price1,384.35
Decline in Points = 1,477.16
Decline in percent = 51.6%
Max Decline = 54.7%

=>This means the decline from intraday high to intraday low is 54.7% and we are currently 51.6% off the peak.
=>The decline in the NASDAQ off the closing high to the closing low was 54.0%


Not everyone was as wildly bullish as Bob Brinker at the top. Some of us took profits[Oct 2007 Take Profits Alert (pdf)] and had significant cash reserves so we can go shopping now with these 50% off sales.

Like anyone who invests in the stock market using asset allocation, I am down significantly from the peak. I don't pretend to time the stock market. The good news is that by taking profits and some good stock selection, my "newsletter explore portfolio" is through today still

• up 28% from the 2002 bear market bottom and
  
• up 82% since 12/31/98 while the S&P500 is DOWN 24% over the same period (12/31/98 to 11/23/08.)

To learn what I have been buying, including two buys on 11/20/08, the day the market made the intraday low so far for this bear market, subscribe to Kirk Lindstrom's Investment Letter.

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Two of the Worst Stock Market Calls in History

Humor is the only medicine for those who took Bob Brinker's advice to be 100% in equities at the start of 2008 and to hold those 100% positions all the way down. (Advice for Model portfolios #1 and #2. Model portfolio #3 was about 66% in equities at the top.)

"Tom" posted this bit of humor on "Honey's Bob Brinker Beehive Buzz" in the comment section for her article titled "S&P 500 Index Below Brinker's March, 2003 Buy Signal."

2 very bad market calls in history:

"Stock prices have reached what looks like a permanently high plateau."
Irving Fisher, October 1929

"We continue to believe that a bear market (S&P Index decline in excess of 20%) is not on the radar screen at this time."
Bob Brinker, December 2007

Click to see full size chart

Tom had some good ones, but these are pretty good also:

June 2007 Marketimer:

”In our view, the valuation based secular bear market that was established following the March, 2000 closing high for the S&P500 index (1527.46) and following the January, 2000 closing high for the DJIA (11723), reached its conclusion on June 13, 2006 at the bottom of the mid-term off-presidential election year correction.”

December 5, 2007 Marketimer (S&P 1481) Bob Brinker wrote:

“The short-term correction that began in October and continued into November has served as a health-restoring pullback and has paved the way for new record highs in the S&P500 index.”

and

“Marketimer subscribers have been able to add to positions on this short-term correction based on our recommendation to view the stock market as attractive for purchase on any weakness into the mid-1400’s range”

and

"We continue to believe that a bear market is not on the radar screen at this time. We expect the bull market to continue at least well into 2008, and look for significant stock market gains."

Finally, he wrote

“We continue to rate the market as attractive for purchase in the mid-1400’s… Any additional weakness below this range is regarded as a gift horse buying opportunity.”

Click to see full size chart

Riddle: What do you call a "market timer" who rides a 45% or more bear market down while fully invested and giving "gift horse buy signals" after the first decline under 10% near the top?

Please post your answers in our comment section.

4% to 5% CDs are looking pretty smart these days.

• 4% 1YR CD at Wachovia Bank
  
• 5% 3 to 7 Yr CDs at Pentagon Federal Credit Union

Long Term Results that Speak for Themselves
Since 9/30/98 inception, "Kirk's Newsletter Explore Portfolio" is UP 373%
vs. the S&P500 UP only 52% vs. NASDAQ UP only 55% (All through 11/30/11) 
(More Info, Testimonials & Portfolio Returns)

In 2010, "Kirk's Newsletter Explore Portfolio" gained 20.4% vs. the DJIA up 11.0%
In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%

S&P500 Earnings for 2008 vs. Bob Brinker's Prediction

In January 2008, Bob Brinker thought S&P500 earnings would be nearly $100 for 2008. In his January 2008 newsletter, Brinker wrote:

Marketimer currently estimates S&P 500 Index operating earnings for 2008 of $97.10... Using our forward price/earnings multiple estimate of 16.5 to 17 times earnings, the S&P 500 Index should be able to achieve a price level into the 1600's range this year.

In our view, stock market valuation remains reasonable, with the current P/E ratio on the S&P 500 Index at 15.1 based on our 2008 operating earnings estimate.

This chart below shows ACTUAL trailing 12-month earnings are less than half what Brinker projected for operating earnings.


Operating earnings are not real. Operating earnings are what companies say they would have earned from “normal operations.” I think it is smoke and mirrors!

Real or "GAAP earnings" include options expensing, law suit settlements and other write offs such as the special charges companies take for restructuring or sub prime defaults at the major banks. GAAP stands for “Generally Accepted Accounting Principles.” I like to follow BOTH because some companies make a habit of writing off mistakes and lawsuit settlements as a regular part of their business to make their operating earnings look better.

In my November 2008 newsletter I wrote:

2008 Operating EPS (bottom up) = $75.94

2008 As reported (GAAP) EPS (top Down) = $54.51

2009 Operating EPS (Top Down) = $62.40

2009 GAAP EPS(top down) = $48.52

Operating earnings suggest the market is under valued while GAAP earnings suggest the market is fairly valued to slightly over valued if earnings contraction from a deep recession continues into 2010.

It should be little wonder why the stock market was down almost 50% from its 2007 peak given we are in a recession that is going to be much worse than most expected at the start of the year, especially Bob Brinker!

The stock market can recover when earnings recover. Some of the the bad news bears say earnings won't ever recover but that is not my belief.

Using Bob Brinker's 16.5 to 17 times OPERATING earnings and S&P's estimates for 2009 of $62.40, I calculate $1029 to $1060 for the S&P500 "fair value." This "low number" may explain why Brinker is not now pounding the table bullish in the 900s despite being very bullish on the radio at S&P1400 earlier this year when he bashed the Cassandras (See Cassandra Rant) on May 31, 2008.

Not everyone thought we would avoid a recession this year. See my March 2008 article " ECRI Calls it "A Recession of Choice." Given I believe Brinker reads my blog and the comments regularly, it was fun to hear him refer to us as "Cassandras" just days after I published that article that said a recession was unavoidable.

To learn what I recommend today:

Subscribe to Kirk Lindstrom's Investment Letter NOW!

ECRI WLI GRowth Rate Continues Plunge to Record Lows

Today the Economic Cycle Research Institute, or ECRI an independent forecasting group based in New York, said its Weekly Leading Index (WLI) fell to its lowest level in its six decade history. The WLI and its growth rate are designed to predict future turning points in the business cycle (recessions and recoveries.)

• More about ECRI
  

Today ECRI said its WLI fell to 110.9 for the period ending October 31, 2008. Last week WLI was 112.9 .

The WLI growth rate fell to -24.6%, down from -21.9% last week.

Commenting on the data, Anirvan Banerji, from ECRI said

"We are now in a severe recession."

and

"The leading indicators are showing no light at the end of this tunnel. In the last week of October they registered their worst readings in their six decades of history. It tells you the economy's not just down, it's plunging. There is no end in sight to this recession."

Date and graph courtesy of Economic Cycle Research Institute

Jobless rate bolts to 14-year high of 6.5 percent in October; 240,000 jobs cut

• The jobless rate zoomed to 6.5 percent in October from 6.1 percent in September, matching the rate in March 1994.
• Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.
• October's decline marked the 10th straight month of payroll reductions

In this March 28, 2008 article, ECRI Called it "A Recession of Choice." At the same time Bob Brinker called ECRI and others "Cassandras" for scaring investors out of stocks in the 1300s and 1400s. In this May 31, 2008 "Cassandra Rant" when the S&P500 was last at 1400, Bob Brinker told his radio audience:

“What we have right in here now is evidence that the Cassandras, who earlier this year, were telling us we were in recession – right now they’ve basically – well I’ll be kind, basically, they look like fools right now.

….So what we have here basically, is an example of false prophets and it’s sad. And the reason it’s sad is the damage done. Think of the people that are looking today at the market, S&P at 1400 and they’ve been scared out of the market in the first quarter by these bears………

It’s just amazing and yet these people are out there, and these people are not happy, I’m sure, to find themselves out of a rising market since March. To find themselves looking for ever lower prices when in fact we’ve had the opposite."

Bob should have listened to the Cassandras or at least admit he of all people can not time the stock market or predict the economy.

Current Market numbers (Stock Markets at a Glance):

• DJIA = 8,888.94
• NASDAQ = 1,643.51
• S&P500 = 924.90

Check Out US Treasury Rates at a Glance

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==> Very Best CD Rates with FDIC <==

Survey of Best CD Rates With FDIC Insurance

The best CD rate 1 year or less is 4.40% at Flagstar Bank & 4.36% @ GMAC Bank.

You can often get higher than advertised rates at your local branch if you do your homework. Print out the "Highest CD Rate Survey" and bring it in with you. Also print out some of the advertisements showing rates advertised on your bank's competing web sites so you have proof. (Make sure the date shows on your printout so they know it is current.)

From the "Highest CD Rate Survey + Current US Treasury Rates" at VeryBestCDrates.com, the best CD rate is 5.00% at Capital One Bank for Terms of 7 and 10 years.

Here is the table with more rates and terms:

"Highest CD Rate Survey + Current US Treasury Rates"

Term	Date	Highest Rate (APY)	Where? (Click link for Full Rate Sheets)
Daily Savings	11/06/08	2.78%	Vanguard Prime Money Market Fund
Tax Exempt	11/06/08	1.79%	Vanguard Tax Exempt Money Market Fund
Online Savings	11/06/08	3.00	at HSBC Bank
3-Month Treasury	11/06/08	0.33%	US Treasury Rates at a glance
6 Months	11/06/08	4.15%	Excel National Bank and 4.00% at HSBC Bank
6-Month Treasury	11/06/08	0.83%	US Treasury Rates at a glance
7 Months	11/06/08	3.00%	Wachovia Bank
1 Year	11/06/08	4.40%	Flagstar Bank & 4.36% @ GMAC Bank,
1 Year Treasury	11/06/08	1.16%	US Treasury Rates
18 Months	11/06/08	4.50%	Advanta Bank Corp
2 Years	11/06/08	4.50%	GMAC Bank
3 Years	11/06/08	4.75%	Intervest National Bank
3-Yr Treasury	11/06/08	1.59%	US Treasury Rates at a glance
4 Years	11/06/08	5.00%	Intervest National Bank & 4.96% @ Discover Bank
5 Years	11/06/08	5.05%	Intervest National Bank & 5.00% @ Capital One
5 Yr Treasury	11/06/08	2.47%	US Treasury Rates at a glance
7 Years	11/06/08	5.00%	Pentagon Federal Credit Union
10 Yr Treasury	11/06/08	3.69%	US Treasury Rates at a glance
30 Yr Treasury	11/06/08	4.20%	US Treasury Rates at a glance

If the above text is too small to read, then read it at "Here in a larger font."

Be careful when you go to your bank and ask for their best rate. They will often use that as an excuse to sell you an annuity that sounds good on the surface, but is far more profitable for them due to the higher fees.

Make sure you read the Article: Beware of Annuities

Market Timing: Is It Impossible?

In the comments section of Honeybee's Bob Brinker Beehive Buzz article "Bob Brinker's Moneytalk: Sunday, November 2, 2008 Update," JeffChristie said...

Dan, I are not saying that market timing can't be done. I are saying that it can't be done consistently. As John Bogle has said in his 50 plus years on wall street he doesn't know anyone who knows of anyone who has done it consistently.

Here is the quote Jeff refers to.

The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike.
[John C. Bogle in Common Sense on Mutual Funds: , pg 20]

I replied:

I wonder if Jack would modify that now that we know Warren Buffett kept his "personal funds" in US Treasuries from the late 1990s until the market fell to the 800s. Stocks were flat over that period (with dividends) while his treasuries probably gained over 50%. Unlike Brinker, Mr Buffett missed the internet/telecom and housing bubbles while sitting safely in US Treasuries.

I now believe a very select few can time the market and have done so with impressive results but Bob Brinker is not on that list. (Note, I have not said the evidence is strong enough to convince me to attempt timing with more than about 5% of my total portfolio... but never say never!)

BTW, Sy Harding's STS has had some impressive results also. Out around 1400 and in at 939 while Brinker was fully invested... wow!

See Sy Harding's MACD Seasonal Buy Signal for details and a chart.

Click chart courtesy of stockcharts.com to see full size image

This is how I look at attempts to time the stock market:

”....there are confident ones; they move from ninety-ten (90:10) in stocks-bonds to five-ninety-five (5:95) in stocks-bonds. That implies a degree of self-confidence bordering on hubris and self-deception. Over the decades, when both groups...have equal limited (!) ability to "time," the cautious chaps who alternate between sixty-five-thirty-five in stocks-bonds (63:35) and sixty-forty (60:40) are likely to end up with a superior risk-corrected total return score.”
[Paul Samuelson, "Journal of Portfolio Management," Fall 1994]

Due to my age, I like 70:30 (equities:fixed income) with a 5% variation. Your mileage will vary.

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• US Treasury Rates at a Glance