Many of you will remember last year when we ask Dr. Doom, Nouriel Roubini to take a seat already! As most of you know Dr. Doom is just that -- a Doomster -- a perma-pessimist. Sadly (and mistakenly), because he is always calling for the worst, he is credited with correctly calling the credit crisis and the ensuing recession. (and will likely be given credit for any other downward trends in the future!)
Fortunately we do currently have more level heads among us. One of those level heads is James Altucher. Forget Dr. Doom and do your homework on James and his columns and interviews.
In this interview with Dow Jones, James gives 7 reasons why the S&P index is headed for 1500.
And in this one, James takes on Dr. Doom and scores knock-out, after knock-out punches.
Enjoy!
Friday, July 16, 2010
James Altucher versus Dr. Doom (Winner: James)
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I enjoyed this post and the debate between Altucher and Dr. Doom. However, in this information age overload of bad economic news, how can we expect confidence to come back in the economy? If confidence is important, then it seems it's going to be difficult to sustain a recovery with the drumbeat of bad news most days.
ReplyDeleteBill,
ReplyDeleteThe negative drumbeat of the media is nothing new. As you know we've been enduring it for years. The sad reality is that bad news has been proven to sell better than good news does. What has been interesting to me historically over the years is how confidence can indeed build despite a media that by its own admission reports bad news 3x more often than good. The conclusion that I've come to is that confidence (and news reports) are not the only factors that drive a sustainable recovery.
Conversely, The Good News Economist blog can't prevent another slowdown!
How do you distinguish between a secular bear market (like we had from 1966-1982) and a true bull market? Could we be just having a bear market rally off the March 2009 lows only to have more declines for a few more years until the next bull? I've seen some commentary stating that this secular bear started in 2000 and will last until about 2017.
ReplyDeleteTypically a bear market is when the overall level of stocks has fallen substantially with 20% losses being the unofficial line that must be crossed. Bull markets, in contrast, consisted of stock prices increasing more than 20%. When we talk about the stock market, we are typically referring to one of the major indices such as the Dow Jones Industrial Average or the S&P 500.
ReplyDeleteIn contrast, a secular bull market or secular bear market consists of a long-term stock market trend that can encompass several bull market / bear market cycles. On Wall Street, it is generally understood that both secular bull markets and secular bear markets tend to last between 5 and 25 years with the average length consisting of 17 years according a long-term chart of stock prices.
In secular bull markets, stocks tend to rise more than they fall with any setbacks being more than compensated for by the subsequent increase in stock prices. The most recent and famous secular bull market consists of the period between 1983 and 2000 when the United States entered into the greatest economic expansion in human history allowing the country to escape from the inflation-induced malaise of the 1970's. Although there were certainly bear markets contained within the period, such as the Black Monday crash of October 1987 when stocks suffered the biggest one-day drop in history and the dot-com bust of 2000, the overall trend was such that an investor who simply bought stocks and held on would have made a great deal of money. Think of secular bull markets as two-steps-forward-one-step back - although there are setbacks, in a secular bull market, you are always progressing forward.
In secular bear markets, on the other hand, the overall trend is one of wealth destruction as the real purchasing power of stocks decline more than they advance. As you mention, the most recent secular bear market was 1966 through 1982. Although stock prices fluctuated wildly, they ended the period about back where they began. The damage came from inflation, which caused investment values to drastically decline in terms of purchasing power. That is, you were better off in some cases buying tangible goods such as real estate or metals. Indeed, Warren Buffett once lamented in a letter to shareholders that in a ten year period during this secular bear market, all of the work of the management teams that were building Berkshire had allowed each share to merely maintain the purchasing power of one ounce of gold. Nevertheless, secular bear markets can represent great opportunities because you can often acquire businesses and stocks for much less than they would be worth in better times. Buffett's $10 million investment in The Washington Post sat on a 50% loss for three years during this period despite his estimate that he had only paid $0.25 on the $1.00 for the company's real, or intrinsic, value. Today, that same stake is worth north of $2 billion - a 2,000% rise.
Don't Get Hung Up on Secular Bull Markets or Secular Bear Markets
It's a great mistake to get hung up on secular bull markets or secular bear markets because you can't control when you are born or into what type of market you find yourself during the prime earning years of your career. Going back to our earlier example, men like Warren Buffett made all of their initial fortune during a secular bear market proving that if you do intelligent things, focus on getting value for your money, constantly educate yourself, and avoid wipe-out risk, you have a very good chance of increasing your equity position.
Don't become a victim to the markets. There are always - always - intelligent things to do.