View Full Version : Investing 101

09-15-2004, 09:01 AM

10-14-2008, 02:59 PM
so true.

10-16-2008, 10:49 AM

Early this year, Jeremy Grantham of GMO predicted, in an interview with Barronís, that the S&P 500 would drop to 1,100 by 2010. A lot of people just laughed at him - was this crazy old man out of his mind? Now, it is like Hamletís last line ďall the rest is silence." We should always listen to an old man who experienced the nifty-fifty losing 80% of their market value in 1970s, and has studied extensively the great depression of 1930s. He probably regrets now that his 1,100 target given was too conservative. Actually, 1,100 now becomes an important resistance point for the upcoming dead cat bouncing or bear market rally.
Jeremy derived his 1,100 target with a more normalized P/E of 11-12 as a norm for a very long term capital market. If I use the more representative bear market P/E value of 6-7, I would come up with a target of around 600-$700 range. At the extreme of this bear market a few years down the road, the S&P 500 might very well overshoot and drop all the way to the 400 level, which was the launch pad for the last leg of the last bull market after the early 1990s recession. Everything is back to square one and this 20 year return of a bull market turns out to be in vain.

How long will this bear market last? Well, the 1930s great depression caused a bear market lasting over two decades, from 1929 to 1952. It was not until 1958 that the market came back to the old 1929 peak, three decades later. And the 1970s market was not much better, lasting 14-16 years from 1966 or 1968 to 1982. Even then, the bear market took until 1992, 24 years later, to reach its 1968 peak.
My most optimistic forecast is it will last another 4-5 years from today, or about 12 years if we count year 2000 as the starting point. If we use the commodity super-cycle by Jim Rogers, which usually runs opposite to the general equity market and lasts until 2020, as Jim predicts, it will be also a two decade bear market for equities, consistent with both the 1970s and the 1930s. When will the S&P 500 be back to last October's peak? At least 24 years from 2000, or 2024. A few chart technicians today think that the Dow can drop all the way to 1,000, back to the 1982 level. Even if it is possible, I think it will more likely bottom at one of the lower Fibonacci level between 14,000 and 1,000. Which one of them is yet to be seen in future years, but my guess is around 4-5,000.

The current market crash is not like 1987, which recovered in a relatively short time since the fundamentals were strong, stocks were in an uptrend and we didnít have the economic bloodline of a credit cut-off then. There is another fundamental factor now supporting a long lasting bear market than in the 1970s. This time, it is demographic. Setting aside the whole investment banking sector being wiped out and OTC derivatives, for the public, the more important factor is that baby boomers are not comfortable with this market turmoil since last year, and want to lock in their nest eggs and cash out, which has caused more baby boomers to do the same.

JMO, the entire article is worth reading and pondering. I've been reading some similar prognoses in different venues for awhile, various aspects of what he touches on.