S&P500 Down 53% In Worst Bear Market Since Great Depression

All three major indexes are now officially 50% or more off their peak values made in 2007. This chart appears to include dividends reinvested to calculate how far the markets are down. The raw data below this graph uses actual trading data to calculate raw index returns, before dividends. No matter how you slice it, the bear market has been brutal to stock market investors.

Click for full size image

S&P500 Chart

Last Market High 10/11/07 at 1,576.09
Last Market low 02/27/09 at 734.52
Current S&P500 Price 735.09
Decline in Points = 841.00
Decline in percent = 53.4%
Max Decline = 53.4%

• =>This means the decline from intraday high to intraday low is 53.4% and we are currently 53.4% off the peak.

• =>The decline in the S&P500 from the closing high to the closing low was 53.0%

DJIA Charts

Last Market High 10/11/07 at 14,279.96
Last Market Low 02/27/09 at 7,033.62
Current DJIA Price 7,062.93
Decline in Points = 7,217.03
Decline in percent = 50.5%
Max Decline = 50.7%

• =>This means the decline from high to low has been 50.7% and we are currently 50.5% off the peak.
  
  
• =>The decline in the DOW off the closing high to the closing low was 50.1%

NASDAQ Charts

Last Market High 10/31/07 at 2,861.51
Last Market Low 11/21/08 at 1,295.35
Current NASDAQ Price 1,377.84
Decline in Points = 1,483.67
Decline in percent = 51.8%
Max Decline = 54.7%

• =>This means the decline from intraday high to intraday low is 54.7% and we are currently 51.8% off the peak.

• =>The decline in the NASDAQ off the closing high to the closing low was 54.0%

Bob Brinker has been fully invested for the full ride down. Worse yet, he was more bullish at the top than he was in March 2003 when he returned to fully invested after reducing his exposure to equities between January 2000 and March 2003. That is in March 2003 Brinker said we were in a secular bear market but in his June 2007 Marketimer he said the secular bear market that began in 2000 had ended in June 2006 (don't ask me how he came up with that crazy calculation.)

=> June 2007: Declared that a secular bear which he said began in March, 2000 had ended in June, 2006. Below is his "buy signal" history:

=> Aug 16, 2007 - January 4, 2008 @ 1411: Mid-1400's. Called it a “Gift Horse Buying Opportunity,” a term reserved in the past for only his very best buys. Brinker did not call his March 2003 “return to fully invested” recommendation with the S&P500 at 808 a “gift horse Buy” because then he thought we were in a secular bear markets.
=> January 20th, 2008 -- rescinded mid-1400's (recommended dollar-cost-average only)
=> Feb 10, 2008 @ 1331: Low-1300's
=> Aug 5, 2008 @ 1285: 1240 or less
=> Sept 2, 2008 @ 1282: Low-to-mid 1200's
=> September 16th -- rescinded low-to-mid 1200's (recommends dollar cost-average only)
=> January 15, 2009 – low-to-mid 800’s

This chart, courtesy of stockcharts.com shows the buy signals graphically.

Click for full size image

With any amount of luck, we are currently testing the November 2008 lows. Unlike Brinker, I have cash reserves and have been nibbling at stocks again near these lows. Since I have been buying down here, I will have something to show for the pain of this decline should the markets recover later this as Brinker predicts. Even if they go lower, it is less pain than being fully invested at the top, riding the markets down over 50% fully invested and not having any "portfolio cash" to put into the market.

Forget about "Market timing" and learn "core and explore investing" with "Kirk Lindstrom's Investment Letter."

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View the full INDEX:.SPX-E chart at Wikinvest

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Successful Bottom Test; Day #1

As of today, we successfully tested the November 2008 low in the S&P500 at 741.02.

Click chart courtesy of Stockcharts.com for full size image

Hopefully this means November 21, 2008 was the start of a new cyclical bull market and yesterday was a day of fear similar to the low set in March 2003.

In 1999 and 2003, the years following the big downturns in 1998 and 2002, my newsletter explore portfolio gained 117% and 77%, respectively.

Brinker may have missed this bear market as fully invested, but he says he expects big gains to come before the recession ends. If Ben Bernanke is correct (see Fed Chairman Bernanke Said Recession Should End This Year) that the recession can (and does) end later this year, then we should see major gains start any day. NOW would be the time to add some high octane to your portfolio from my list of "explore stocks."

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 94% vs. S&P500 DOWN 14% vs. NASDAQ down 28% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 37% (All through 12/31/08) (More Info)

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Don't miss out!

BTW, Jim Cramer (Fan Club) is on TV now saying we should get a "big rally" that he thinks is an opportunity to sell before the market goes lower because the fundamentals are terrible. Unlike Brinker who has been fully invested since the top, Cramer told his audience and NBC's "Today Show" national audience to raise 20% cash plus cash for anything you need to buy in the next five years late last year when the markets were about 30% higher.

Dow Down 16.1% YTD

Less than two months into 2009, the DJIA is down another 16.1%!

Index	Ended Week	YTD %
DJIA	7365.67	-16.1
Nasdaq	1441.23	-8.6
S&P 500	770.05	-14.7
Russell 2000	410.96	-17.7

Click charts courtesy of Stockcharts.com to see full size images

Bob Brinker remains fully invested with Model Portfolios #1 and #2 100% in equities as they have been since the markets peaked in 2007.

January 6, 2009 Marketimer Quote:

"Our model portfolios are fully invested."

In addition to being fully invested at the top, Brinker's last six "all in" buy levels have seen the S&P500 100 or more points lower soon after the announcement.

For more quotes, see Bob Brinker's Asset Allocation History.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 94% vs. S&P500 DOWN 14% vs. NASDAQ down 28% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 37% (All through 12/31/08) (More Info)

Subscribe NOW and get the February 2009 Issue for FREE! ! (more information)
(Your 1 year, 12 issue subscription will start with the March 2009 issue.)

2/24/09 Update

Elaine Garzarelli Trading Range; Her Indicators Are Bearish

Not everyone has been as wildly bullish as Bob Brinker for this market decline. Elaine Garzarelli, president of Garzarelli Capital, was correctly bearish for much of this bear market. Elaine was "Nightly Business Report's "Friday Market Monitor" for Friday the 13th, 2009. You can read her full interview here. Elaine has a PhD in economics and she correctly forecast the 1987 bear market, another bear market Bob Brinker rode down fully invested.

Her last visit was Friday August 1, 2008. You can read the full transcript of her last visit here.

My comments on some of what Elaine said Friday February 13, 2008:

KANGAS: Because you have a Ph.D. in economics, Elaine, who could be better to ask as to whether these massive Obama rescue plans for the economy and the banks are going to work out.
GARZARELLI: Well, I think it's a little late. I think it's more of a 2010 deal than it is 2009. In both years it will be about 2 to 3 percent of GDP. But 38 percent of it is a tax cut and consumers right now, with the unemployment rate probably getting up to 10 percent, are more likely to save than to spend that money. And the other spending has to do with infrastructure projects. A lot of it goes to state and local governments and their budgets are so bad, they're likely to keep it rather than spend it.

Elaine was bearish last year because she thought earings estimates were too high (too bad Brinker didn't use her estimates.) Elain thinks earings estimates are still too high.

KANGAS: On your last visit with us in early August, you were correctly bearish on the stock market mainly because you thought corporate earnings estimates from Wall Street analysts were far too high, about 42 percent too high. How about now?
GARZARELLI: Now they're 44 percent too high.
KANGAS: Oh, boy.
GARZARELLI: Because we had to lower our estimates again from 55 to 46 for the S&P 500 operating earnings. And that's because we see a peak to trough decline in real GDP of about 4 to 4 1/2 percent, which is the worst post-World War II recession that we have ever had.

Elaine's indicators are more bearish than bullish:

KANGAS: Your 14 market indicators back in August were at the 50 mark. 30 is the sell signal, 65 a buy and so they were kind of bearish. Where do they stand now?
GARZARELLI: They're at 38 percent now and they need to go to 65 percent for a new cyclical bull market to begin. So they're still on a sell signal, still in a bear market. We might be getting near the end of it. It all depends really on credit spreads and how fast the BAA bond will come down.

Next they discussed some of her stock picks and shorts from her last visit. Her four buy recommendations were UUP (up 13.6%), BAC (down 82%), MO (down 23.8%) and SH (up 11.6%).

Lets see how she did with 25% Equal into each:

Ticker	Change	Wt	Final
BAC	(82.3%)	0.25	0.04415
UUP	14.8%	0.25	0.2869
MO	(18.8%)	0.25	0.2029
SH	30.2%	0.25	0.3256
Weighted Total			0.85955
Change			(14.0%)
S&P500			(33.8%)
Elaine's Picks Beat the market by			19.8%

Elaine's new stock picks and 750 to 950 S&P500 trading range:

Elaine's new stock picks and 750 to 950 S&P500 trading range:

KANGAS: Do you have some new recommendations, Elaine?
GARZARELLI: Yes, I do. I have some good ones. Now, I think we might be in a trading range from 750 to maybe 950 on the S&P 500, so in that range you want to un-hedge at the bottom of the range and then you want to hedge at the top end of the range or you could keep hedges on all the time, which is what I do.

Elaine's four new picks:

1. HNW: 19% yield.
2. MUA: 7.4% yield.
3. RYU: Ryder, the equal weighted utilities index
4. SDS. A double weight S&P500 short.

GARZARELLI: OK. The first one is (HNW) and that's 19 percent yield. And that is the--
KANGAS: Unbelievable.
GARZARELLI: That is the Pioneer high-yield income trust. Another one, municipal bonds I think are a great bargain right here. We're getting a 7.4 percent yield and that's MUA, Blackrock muni asset fund.
KANGAS: Very good.
GARZARELLI: And I also like the dividend fund which is (RYU), that's the Ryder, the equal weighted utilities index where most of it is in utilities and then telecom about 20 percent. And then the last one is the same thing I did before but it's a double weight and that's (SDS), which is a short, which gets you 75 percent hedged, 25 percent exposure to the market. That should give you a dividend of about 12 percent.

Elain says she owns them all.

I take it she is fully short at 950 then takes the shorts off as the market approaches 750 until her indicators give a buy signal.

2010 Update.  Looks like the market continued lower to 676 in March then rallied to 950 in June 2009.  I

wonder if she turned bullish after June 2009.

Bob Brinker's Current GNMA Fund Advice

Last weekend Bob Brinker was asked for his current outlook for the interest rate risk on his favorite GNMA fund. For years and years, Bob Brinker has recommended Vanguard's GNMA fund, ticker VFIIX, charts and current quote. VFIIX has one of the lowest expense ratios in the industry and thus has about the best long-term performance as a result.

More VFIIX Charts

Brinker said the fund has done quite well and its duration and average maturity are very short so there is less interest rate risk. Brinker also said he still expects the fund's net asset value, NAV, to trade between $9.50 and $10.50.

Here is what Vanguard says about the fund:

Fixed income characteristics as of 12/31/2008

	GNMA Fund Investor Shares	Barclays US GNMA Index
Number of bonds	25	120
Yield to maturity yield to maturity The rate of return an investor would receive if a security is held to its maturity date.	3.4%	4.6%
Average coupon	5.6%	5.7%
Average maturity average maturity An average of the maturity dates for all securities in a money market or bond fund. (The maturity date is the date that a bond or money market instrument buyer will be repaid by the security's issuer.) The longer the average maturity, the more a fund's share price will move up or down in response to changes in interest rates.	1.7 years	3.8 years
Average quality*	Aaa	AAA/AAA
Average duration duration A measure of the sensitivity of bond—and bond mutual fund—prices to interest rate movements. For example, if a bond has a duration of two years, its price would fall about 2% when interest rates rose one percentage point. On the other hand, the bond's price would rise by about 2% when interest rates fell by one percentage point. **	1.0 years	2.4 years
Short-term reserves	0.2%	—
Fund total net assets	$29.2 billion	—
Share class total net assets	$14.7 billion	—

An average duration of 1.0 years means the fund will lose about 1.0% in NAV for every 1.0% rise in interest rates.

You can see that the fund has positioned itself for higher rates by shortening maturity at the cost of lower yield to maturity and a slightly lower credit rating. (Understanding Credit Ratings will be covered in the March 2009 issue of The Retirement Advisor.)

VFIIX is NOT an index fund. Vanguard says the fund "Follows no specific maturity guidelines but typically maintains a dollar-weighted average maturity of 3 to 10 years."

Vangaurd Fixed Income Funds:

GNMA (VFIIX),
Total Bond (VBMFX)
TIPS (VIPSX)
High-Yield/Junk Bond (VWEAX)
VFIIX chart at Wikinvest

Kirk's Dec. 2009 Update. I sold ALL my GNMA holdings in my "explore portfolio" a few months ago for a nice gain from buying at a much lower price. I made two buys at $9.93 and $10.09, collected the interest and sold the last at $10.72. I then used the funds and some other cash in the portfolio to buy TIPS (at the auction directly via my broker) that are up about 2% since buying as I type.

My core portfolio had an index fund for fixed income that has a significant position in GNMAs but I sold that also in one of my very rare core portfolio changes.

The full details of my "core and explore" holdings with monthly updates are covered in each issue of "Kirk Lindstrom's Investment Letter."

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 159% (a double plus another 59%!!) vs. the S&P500 UP a tiny 8.6% vs. NASDAQ UP a tiny 3.5% (All through 12/31/09) (More info - FREE Sample Issue)

"Kirk Lindstrom's Investment Letter Explore Portfolio" gained 33.5% in 2009. This portfolio has 75% in equities and 25% fixed income with a beta of 1.0.

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• US Treasury Rates at a Glance
  
  
• LIBOR Rates at a Glance

Best CD & Savings Rates Survey

The top rates for CDs this week are at Pentagon Federal Credit Union (fondly known as PenFed CU) for 5 and 7-year certificates of deposit that currently pay 4.39% APY.

For shorter term, Flagstar Bank, has a 1-year CD with a 3.25% annual percentage rate.

For online savings, GMAC Bank is paying 3.00% on any deposit over $500.

With rates so low, banks will try to sell you their annuity products. Make sure you read our article: Beware of Annuities

The table below shows the best CD rates for other terms. If that table is hard to read, then try Very Best CD Rates.

"Highest CD Rate Survey + Current US Treasury Rates"

Term	Date	Highest Rate (APY)	Where? (Click link for Full Rate Sheets)
Daily Savings	2/4/09	1.53%	Vanguard Prime Money Market Fund
Tax Exempt	2/4/09	0.74%	Vanguard Tax Exempt Money Market Fund
Online Savings	2/4/09	3.00%	GMAC Bank & 2.45% @ HSBC Bank
3-Month Treasury	2/4/09	0.29%	US Treasury Rates at a glance
6 Months	2/4/09	2.86%	Flagstar Bank
6-Month Treasury	2/4/09	0.41%	US Treasury Rates at a glance
9 Months	2/4/09	2.76%	Nexity Bank (Birmingham, AL)
1 Year	2/4/09	3.25%	Flagstar Bank
1 Year Treasury	2/4/09	0.50%	US Treasury Rates at a glance
18 Months	2/4/09	3.00%	GMAC Bank
2 Years	2/4/09	3.25%	iGObanking.com
2 Year Treasury	2/4/09	0.97%	US Treasury Rates at a glance
3 Years	2/4/09	3.40%	Flagstar Bank
3-Yr Treasury	2/4/09	1.41%	US Treasury Rates at a glance
4 Years	2/4/09	4.15%	PenFed Credit Union
5 Years	2/4/09	4.39%	Pentagon Federal CU
5 Yr Treasury	2/4/09	1.93%	US Treasury Rates at a glance
7 Years	2/4/09	4.39%	Pentagon Federal CU & 4.00% @ Discover Bank
10 Yr Treasury	2/4/09	2.93%	US Treasury Rates at a glance
10 Years	2/4/09	4.00%	Discover Bank
30 Yr Treasury	2/4/09	3.69%	US Treasury Rates at a glance

• Easy to Read Best CD Rate Survey
  
  
• US Treasury Rates at a Glance
  
  
• World Stock Markets at a Glance

With rates so low, banks will try to sell you their annuity products. Make sure you read our article: Beware of Annuities

Marketimer YTD Returns Through Jan 31, 2009

The January numbers are in at Bob Brinker.com for the Marketimer newsletter.

Portfolio I YTD

Value 31 Dec 2008 $171,451
Value 31 Jan 20009 $157,451
Down YTD $ 13,702 (8.0%)

Portfolio II YTD

Value 31 Dec 2008 $143,294
Value 31 Jan 2009 $132,439
Down YTD $ 10,855 (7.6%)

Portfolio III YTD

Value 31 Dec 2008 $163,563
Value 31 Jan 2009 $156,228
Down YTD $ 6,335 (3.9%)

Benchmarks YTD:

Total Stock Market Index Fund VTSMX (Charts) (8.3%)
Kirk's Explore Portfolio (Very aggressive) (7.4%)
The Retirement Advisor Portfolio #1 (5.0%)
The Retirement Advisor Portfolio #2 (3.4%)
The Retirement Advisor Portfolio #3 (1.0%)


Marketimer Portfolio I is designed for investors with aggressive growth investment objectives. Such investors seek maximum returns and are willing and able to accept high levels of risk and volatility. Current income is not a factor in this portfolio.

Marketimer Portfolio II is designed for investors with long-term growth objectives. Such investors seek to enhance the value of their capital over time. They are willing to assume a reasonable level of diversified market risk. Current income is not an important factor for such investors.

Marketimer Portfolio III is designed as a balanced portfolio for current investment income along with capital preservation and modest growth. The portfolio is allocated evenly between equities and fixed-income securities. This portfolio is best suited to investors nearing or already enjoying a retirement lifestyle.

The Retirement Advisor Aggressive Growth and Income Model Portfolio 1 , designed for someone approaching retirement who is interested in a portfolio allocation designed to provide income and capital appreciation while avoiding excessive risk, lost 18.22% in 2008 while the S&P500 lost 37% counting reinvested dividends. This portfolio was 50% in stock index funds and 50% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection which we feel allows a lower allocation to equities and a 4% withdrawal rate.

The Retirement Advisor Moderate Growth and Income Model Portfolio 2 , designed for someone who has retired and seeks to maintain their current standard of living, even with inflation, lost 8.75% in 2008 while the S&P500 lost 37% counting reinvested dividends. This portfolio was 30% in stock index funds and 70% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection

The Retirement Advisor Conservative Capital Preservation Model Portfolio 3 , designed for someone in the later stages of retirement who wants to avoid any losses in their portfolio and who does not need a lot of inflation protection, gained 3.73% in 2008 while the S&P500 lost 37% counting reinvested dividends. This portfolio was 100% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection.

A Different Opinion Than Bob Brinker The Raging Bull

This was posted anonymously on another message board. I am adding it here (in blue) as it is very different than Bob Brinker's extreme level of bullishness. (Brinker remains bullish and now expects very large gains, as most other bulls predict after a major market bottom.) Pay attention to the last bit about who was right last year.

If anyone had told you on Dec.31 2007 that:

1. Bear, Lehman, Merrill would all be gone in virtual bankruptcy, while Goldman and Morgan became banks

2. Citi, Fannie, Freddie, were all basically nationalized and bankrupt

3. The US financial system was insolvent, and estimates to repair it are from $2 to $4 TRILLION in new money...AFTER a $700 B bailout.

4. Copper inventories were going back up to all time highs, oil was overflowing at Cushing, and many of the biggest miners in Canada were at serious bankruptcy risk

5. California was essentially bankrupt...

6. Chinese Manufacturing would have CONTRACTED for the sixth straight month

7. The DOW holding 8000 would be considered a victory

There isn't anyone who would have believed em. I sure wouldn't have believed it. This is some seriously bizarre things we're seeing in the world. Things we haven't seen since the Great Depression...some things we've never seen. Yet there are still people out there who want to pretend this is 1974 or 1982?

At every step of the way its been bigger, badder and more destructive than almost ANYONE predicted. And the only people who did predict any of it think its still getting worse.

Yet many are cheered when the same people who thought 2008 was going to be a good year think 2009 is going to be a good year.

Bob Brinker a Year ago in his January 2008 Marketimer with S&P500 @ 1468.36 :
Pg 3: “In summary, the Marketimer stock market timing model indicates that conditions are favorable for the market as we enter 2008.

We expect the S&P Index to achieve new record highs this year and to reach the 1600’s range in the process.

We continue to rate the market attractive for purchase on any weakness into the S&P 500 Index mid-1400’s range. Above this range we prefer a dollar-cost-average approach for new purchases.

All Marketimer model portfolios remain fully invested as we enter 2008."

Wake up and protect yourself. These are some crazy days.

I don't believe anyone can time the stock market but a bear friend of mine told me over a decade ago that the CEOs of most companies were cheating shareholders via stock options and excessive salaries while banks were creating a credit buble by lending money too easily. He was not right in all his price predictions, but he was right about the banks and CEOs. My house is still nearly double where he told me to sell but the stock market is back to where it was when he issued his warning.

Here is a chart showing Brinker's Buy Levels prior to his most recent "buy bulletin."


Needless to say, with so many buys at higher levels, eventually he'll get one right.

For me, I take profits when the market is up and buy back shares when it is down such as times like these. The idea is keep a fairly constant asset allocation and rebalance when the market makes major moves, either up or down. With my "explore portfolio" I do it with individual stocks for more opportunity for good long term gains.

Kirk Lindstrom's Investment Newsletter
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2002-2003 Bear Market Bottoming Process

Here is a chart of the 2002-2003 Bear Market Bottoming Process which made three bottoms between July 2002 and March 2003.

Click chart courtesy of Stockcharts.com for full size image

RSI, relative strength index, bottomed first on high volume at B1=797.70

Price bottomed next on lower volume with a lower closing low on October 9, 2002 at B2=776.76.

The start of the war in Iraq caused a third bear market low at B3=800.73. B3 was about 3.1% higher than B2.

Triple bottoms are rare and can proceed very powerful rallies.

In 2003, the S&P500 gained 28.5% (chart) while my "newsletter explore portfolio" gained 77%. My stocks have done their best early in the bull market cycles.

I hope my newsletter explore portfolio repeats that exceptional performance if the market does as well as Brinker seems to be indicating. Then again, Brinker had a gift horse buying opportunity when the S&P500 was at 1450 and he's been fully invested since the very top so you have to take his predictions with a grain of salt.