Why Can't Stocks Get On a Run?

06-06-2005, 11:53 AM

Searching to explain the stock and bond markets' surprising ups and downs recently, some money managers think they have an answer. They believe we are suffering the effects of something called a "secular bear market." â€¦â€¦â€¦

Stocks were in a long-running, or secular, bull phase from 1982 until early 2000, when the market bubble popped. During that period, stocks occasionally did slump, and they even crashed in 1987, but they mostly rose. The Dow Jones Industrial Average put on 15.9% a year, on average, double the mean of 7.6% a year since it was created in 1896.â€¦â€¦â€¦..
After such a long period of strength in the economy and in the stock market, the thinking goes, there is a risk of a lengthy period of softness -- a secular bear. From 1966 through 1981, a time of high oil prices and world tensions that followed years of stock strength, the Dow Jones industrials averaged almost no gain at all. They rose less than 1% a year on average, and that was more than eaten up by inflation.

Some money managers fear we are in the midst of another such prolonged weak period. "Returns this decade have been and will continue to be below levels we enjoyed in the '90s and even the '80s, meaning that they will be in single digits on average," says Russ Koesterich, senior portfolio manager at Barclays Global Investors in San Francisco. "They are going to feel disappointing compared to what people grew up with over the past 20 years."................

That kind of concern could be seen in the market last week, as the Dow Jones industrials broke a two-week winning streak and fell 81.58 points, or 0.8%, to 10460.97, following a drop of 92.52 points, or 0.9%, on Friday.

Still, plenty of investors remain optimistic and think last week's troubles are a passing storm. "The fundamentals I am seeing in the stock market aren't the kinds of things I would expect to see in a secular bear market," says Janna Sampson, director of portfolio management at OakBrook Investments in Lisle, Ill., who thinks the talk of a secular bear is wrong-headedâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.
Until a few days ago, stock investors had welcomed the bond market's unusual behavior, as the yield of the 10-year Treasury note fell below 4%, a level it rarely crosses. It was taken as a sign that inflation was under control and that the Federal Reserve would be able to stop raising its target interest rates soon.
But as the week progressed, fears spread that the continuing plunge in the 10-year yield was a sign of doubt about economic strength and about the stock market's prospects.â€¦.... Despite the stock rally that began in April, major indexes still are showing losses for the year, with the industrial average down 3%, the Standard & Poor's 500-stock index off 1.3% and the Nasdaq Composite Index declining 4.8%. Their inability to push into positive territory since March reflects the skepticism.

FranÃ§ois Trahan, chief investment strategist at Bear Stearns, last week began warning that the S&P 500 could fall to 1150 by year's endâ€¦â€¦.. He now believes the gains won't come until next year.

Part of the problem is that, despite the widespread hope for an end to the Fed rate increases, some investors expect the central bank to disappoint markets by continuing to raise its target rates for some months to come. Inflation pressures remain: Oil prices rose sharply last week, pushing above $55 a barrel again. With consumer-price inflation running at more than 3% and the Fed's target short-term rate currently at 3%, the real, inflation-adjusted Fed rate remains negative, below the level many economists expect the Fed to seek. see attached for full article

06-06-2005, 11:56 AM

That article is going to go over well on this board.

**Birchtree** · 06-06-2005, 12:28 PM

DMA,

When do you sleep.

That article by Browning ( who has a tendency to lean left and bearish) is the opinion of one man. There are a lot of grains of salt in the salt shaker. My opinion is we are starting a secular bull market - and I would bet absolutely no one believes me - and I like it that way. This thing is wide open - put your chips down and watch the ball go round. I think it lands decisively on green. Patience is virtuous - but risk equals reward.

**Spaf** · 06-06-2005, 01:17 PM

Wonder Woman wrote:

Searching to explain the stock and bond markets' surprising ups and downs recently, some money managers think they have an answer. They believe we are suffering the effects of something called a "secular bear market." â€¦â€¦â€¦

Stocks were in a long-running, or secular, bull phase from 1982 until early 2000, when the market bubble popped.

The problem is with the use of the word "secular". It has no meaning at all (maybe in a religious context), and only confuses readers. These folks have lost their true reality about the market. The attached chart is what they are talking about.

It's a great chart of long term history. But it doesn't focus in on what is happening now.

Can you read this chart and develop a trend for the next six months???????

Rgds :P Spaf

**JohnnieB1** · 06-06-2005, 01:26 PM

what happens to stocks when oil prices increase from here?

One day we may be looking at $55 BO as the good old days

with US refining capacity down (there was a major explosion last month at a BPUS Gulf refinery), with a lot of the offshore locked up to further exploration, and with domestic onshore production sinking we will just need to import more and more... yielding higher prices....

**Spaf** · 06-06-2005, 01:51 PM

JohnnieB1 wrote:

what happens to stocks when oil prices increase from here?

One day we may be looking at $55 BO as the good old days

with US refining capacity down (there was a major explosion last month at a BPUS Gulf refinery), with a lot of the offshore locked up to further exploration, and with domestic onshore production sinking we will just need to import more and more... yielding higher prices....

Stox and oil have been on a see-saw for over a year!

< 45 = calm. 45 - 55 = worry. > 55 = jitters.

Not enough boats, too many Hummers!

Rgds!

Spaf

**JohnnieB1** · 06-06-2005, 06:11 PM

just wait.

what will the market say at $70 BO ?????

06-06-2005, 06:19 PM

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**Birchtree** · 06-06-2005, 06:24 PM

Johnnie B 1

There is not much you can do in the TSP because the sp500 only contains 7% energy. You might have better sucess in the S fund which is more widely diversified and probably has a greater proportion due to default.

If you are in the stock market where you can be selective you need to be overexposed to energy in all forms. The market will develope leadership that will carry us to new highs. Technology has passed the torch to energy. Think about Nuclear power and how to own a position in that industry. Garbage to fuel may become popular again - this puppy is wide open. Close your eyes and pick'em.

Dennis

Dave M · 06-08-2005, 02:15 PM

http://en.wikipedia.org/wiki/Secular

See definition number three. A secular trend is simply one that uses time as the independant variable -- a time trend.

A thing I can recommend wrt energy is to buy a few shares of a public utility with a dividend reinvestment provision. In 1988 we bought 20 shares of NYS Electric and Gas, for my daughterwith myself as custodian of the account. The price was about $20 per share so the total investment was a paltry $400. Today the company is known as Energy East Corp and there are 106 shares in the portfolio with a price of $27 for a total value $2900. When she graduates from college next year -- M.A. -- she will take over as custodian. My advice to her will be, do nothing and let it continue to accumulate. In 30 years it will be a nice addition to her retirement, worth maybe $75-100k. (In contrast my nephews took the dividends as cash and now have nothing or nearly so.)

Public utilites are garanteed a profit by the local Public Service Commission. The profit is usually small as they are a public utility, but for that very reason they can never be allowed to go broke.

Dave

06-08-2005, 02:36 PM

Utilities have had a HECK of a run. They are like the tech stocks from 1999. Like the REITs. Way, way over their historic averages.

Raising interest rates they get CRUSHED.

Putting money there now is like playing Russian Roullette.

Do we have inflationary or a recessionary economy?

Hedious accounting. :shock:

You have to ask yourself, do you feel lucky?

Dave M · 06-08-2005, 03:46 PM

Luck has little to do with it. It has been 17 years with another 30in prospect. Theshare price goes up, the share price goes down, but the share count always increases.The company has survived a hostile takeover attempt, has divested itself of its share in a nuclear power reactor on Lake Ontario and paid a one-time fee for future clean-up costs, surviving the normal vicissitudes of corporate life.

Are you trying to tell me it was a mistake, DMA? Feel free to take your own advice; I'll take my chances.

Dave