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Recap of the 1974-1975 Bottom


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#21 pdx5

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Posted 16 April 2009 - 05:45 PM

Nice summation of mid-1970's period. I lost my shirt in 1974 due to buying stocks on margin. When margin calls came, I had run out of cash. On the road to recovery I bought LIL & SDO & PGE etc since they were all paying double digit dividends and utility dividends had some sort of tax break back then. I re-invested all dividends and by 1985 my stocks had tripled. Thanks to Volcker & Reagan, my financial situation was on the way to eventually retire in my mid-50's. At this point my guess is that SPX could cross 1200 before bad things happen . My reasons why I think the market will keep advancing is that this recession is not even close to being as bad as in mid-1070's. Interest rates are much much much lower now. Inflation is much much lower now. Unemployment is slightly less now than it was then. Stocks have fallen drastically now as they had in 1974. However we have the BRIC's now which we did not have then. Half of world's population lives in China & India. Both are on track to GROW economy in 2009 at 6%+. Wish we had that kind of growth here. The manufacturing capacity of world is now bigger by orders of magnitude than it was in 1974. Which will act as a barrier to inflation. There are linitless goods and services available to absorb any thing the consumers & governments want to spend. So we have this perfect storm brewing...low interest rates, low inflation, extremely liberal monetary policies world wide, lack of super power adversaries, growth in highly populated countries of the world and a discounted stock market. Bulls will rule for the next year or two. Eventually, higher taxes, profligate spending and excessive printing of money will catch up and could derail the markets. But I give it two years.
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#22 inamosa

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Posted 16 April 2009 - 06:07 PM

FWIW, I believe P/E reached under double digits in '74-75.

We're not even close to that right now...not even close. In fact, we're above the mean of 15 any way you cut it.

If 666 was a multi-year bottom (I doubt it), it will be broken within 5 or 6 years, easily. It will be just like the 2003-2007 bull market, which was basically a result of devaluation of the dollar and creating the right environment for a housing and debt bubble. Ultimately, America is worse off than if it had just taken its medicine back in the early 2000s. Same thing will happen here if the bottom is really in.

Look at '66-82 bear market (basically sideways humps on a chart). We could very well have something similar brewing here, IMO (and it started back in 2000) assuming a bottom is in that won't be broken for at least a couple of years (I would say unlikely based on what I've seen).

Alternate scenario may be '38-42, which is Lousie Yamada's main comparison to now:
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Again what we have from '38-42, as with '66-82, is sideways humps where we go up and down, making no new highs really (but still making new lows every several months)....until it ends

Edited by alysomji, 16 April 2009 - 06:13 PM.

"Our job is not to predict where the market will go, but to interpret daily price and volume action to ascertain the facts of the current environment and make decisions based on that interpretation."
-Scott O'Neil (son of William O'Neil), Portfolio Manager at O’Neil Data Systems, when asked where the Dow would go in the coming months

#23 Gary Smith

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Posted 16 April 2009 - 06:18 PM

>>>Look at '66-82 bear market (basically sideways humps on a chart). <<< There were lots of exploitable Dow/S&P cyclical bull markets in that secular bear. And the late 60s was one wild affair for stocks on the American Stock Exchange, akin to the NASDAQ blowoff in 99, - moblie home manufacturers, bowling alleys, etc. And then there was the Nifty 50 in the early 70s. And the bear ended for most stocks in 1974, only the large cap S&P and Dow went sideways till 82 while from late 74 to 80/81 the small caps had their best performance in history.

#24 IndexTrader

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Posted 16 April 2009 - 07:09 PM

>>>Look at '66-82 bear market (basically sideways humps on a chart). <<<


There were lots of exploitable Dow/S&P cyclical bull markets in that secular bear. And the late 60s was one wild affair for stocks on the American Stock Exchange, akin to the NASDAQ blowoff in 99, - moblie home manufacturers, bowling alleys, etc. And then there was the Nifty 50 in the early 70s. And the bear ended for most stocks in 1974, only the large cap S&P and Dow went sideways till 82 while from late 74 to 80/81 the small caps had their best performance in history.


Funny isn't it Gary? People always refer to 69-82 period as a bear market. But frankly I never looked at it like that. As you mentioned, we had a wonderful bull market in small stocks after 1974. I recall the bull market for several years there in energy stocks. Houston Oil and Mineral (HOI) or Mesa Petroleum (MSA), Reserve Oil (RSO I think). Small computer stocks. Pertec sticks in my memory (PTC). Gambling stocks, Resorts International, Bally. Rival Manufacturing, the crock pot. Gold stocks had their move back then. I could go on and on. Don't let me forget Teledyne (TDY)...one of the best stocks of all time.

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#25 IndexTrader

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Posted 16 April 2009 - 07:14 PM

FWIW, I believe P/E reached under double digits in '74-75.

We're not even close to that right now...not even close. In fact, we're above the mean of 15 any way you cut it.


I don't remember what the overall PE ratio was back then. But I do remember lots of stocks at a single digit PE ratio. Of course, what you leave out is the level of interest rates. I recall 8% high quality municipal bonds for instance back in 1975. Or in the early '80s rates went to 20%. Obviously we don't have that either right now.

IT

#26 shanabe

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Posted 16 April 2009 - 07:39 PM

Burns was the Fed chair, not Volcker. The Saudis ended their embargo of crude in the spring of 1975. Perhaps as a result of this, Burns started cutting interest rates and inflating the money supply about nine months before the market bottomed. In 1975, they had a 5% homeowner credit, tax rebate checks, increase in working persons tax credit, etc. Most families were single-earner before the great inflation of 1975. Wives went to work because of the inflation, and the higher household incomes contributed to housing recovery and higher inflation.

Bingo.

Worth noting is that the current troubles are credit induced -- which is a different animal so the jury's out as far as expecting a "typical" recovery -- or at least for the same reasons. Also worth noting is the inflationary monetary policies Burns implemented. They worked...and led to more troubles in a few years...which is probably the one comparison worth noting. Bernanke and Congress are making Burns etal. look like pikers in comparison. When anyone in officialdom is asked about potential future ramifications of the current spending orgy and unprecedented Fed actions, the answer is always a variation of the same theme -- "we'll worry about that when the time comes." That should make any thinking person very nervous. Assuming they blow it - and its likely they will - at least it'll be telegraphed well in advance.

As far as ogm's ideas on what he needs to be Bullish - I'd agree w/ what he states but caution that there may be a substantially lower bar set for everyone else to get Bullish. The train may very well be leaving the station w/ gears grinding and springs popping off - but it may leave the station nonetheless. How far it goes is another question. I can't help but suspect that the conductor of this train is a drunken Bankster who's quite likely to miss a switching signal and run the thing off the rails and into an abutment.
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#27 Gary Smith

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Posted 16 April 2009 - 08:12 PM

>>>>Bingo. Worth noting is that the current troubles are credit induced -- which is a different animal so the jury's out as far as expecting a "typical" recovery -- or at least for the same reasons.<<<< Couldn't agree more about being credit induced. And what happened right before the S&P nosedived this past autumn? Junk bonds took a nosedive with credit spreads widening, eventually going to their largest spread ever over Treasuries, even more than in the Great Depression. At their lows, junk bonds were factoring in a default rate between 20% to 21%. So now, beginning on December 16, that we have just concluded the greatest four month rally ever in junk bonds (beating the early 1991 rally) and spreads have come in considerably does that tell you anything? The credit markets have unfrozen and earlier this week we had the two biggest junk bond deals since early 08 go off without a hitch. Moody's recently lowered their prediction of the peak default rate for this cycle for the third time to just over 14%.

#28 da_cheif

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Posted 16 April 2009 - 08:33 PM

hey cheif ... i want to buy a small apartment in brooklyn right on the edge of manhatten. i have offspring going to work there and am told prices have tumbled. what do you think of that area?



gettit while its still cheep.....best investment ull ever make.... :D