It’s been a bear — but things are looking up

Earlier this year, I predicted that once we got to a point that President Obama could speak on television — and the market would go sideways or up — it would be a sign the market may have hit the bottom. Once you hit a certain point, you run out of sellers, and there is nothing left to bring the market down any further.

After watching a politically perpetuated 25 percent drop in the Dow Industrials this year alone, it appears we may have hit the market low on March 9.

The market was so low at that point — down 54 percent from its peak — it appeared as though everything negative had been factored in, maybe several times over. At that point, confidence was completely destroyed, such that high-yield bond default rates were projected at double what they were during the Great Depression. Another metric showed consumer spending at the same level it would be if unemployment were 30 percent. (It’s actually 8.5 percent.)

Imagine you were asleep the past 18 months and just woke up. Looking forward, not backward, things actually look pretty promising.

• Six of our eight “bull watch” indicators support the case for a new bull market.
• Most of the economic indicators we watch have stopped declining and are now moving sideways or up
• Housing is more affordable and mortgage rates are lower than they have been for some time.
• Energy is more affordable for consumers and businesses.
• Credit has loosened and interest rates are extremely low.
• Massive global government stimulus is occurring.
• An abundance of investor cash is on the sidelines.
• This has been called the sale of the century. In inflation adjusted terms, the March 9 low point put the Dow Industrials at the same level they were 43 years ago. In 1966 there were no PCs, no Internet and our workforce was half the size of what it is today.
• Four-fifths of top economists in the latest Wall Street Journal survey said now is a good time to buy stocks.
• Investor sentiment has reached the negative extremes and started to reverse.

Going Forward
Both our conservative and growth portfolios were down during the first quarter. By the end of April both portfolios had reversed strongly and turned positive for the year. Both portfolios continue to be invested in areas of the market that have historically performed the best after a bear market. After the 2000-2002 bear market, we were able to almost double the return of the market averages by positioning our portfolios in the best places.

This is the 34th bear market in the past 100 years. The future always looks bleak when the bear market is the worst. People become irrationally pessimistic. That is when the naysayers have their day of fame. They get all the press and the media loves them. They always expect things to get worse and they always attract a lot of followers. And they have always been wrong. Not wrong once or twice, but the past 34 times.

Our economic system is resilient. Our markets and our economy have always recovered from these difficult times in the past. We’ve made it through recessions, world wars, a civil war and a depression. I believe in the free market system. Our market and economy will recover again. I believe we are living through an investment opportunity that only happens once or twice in a lifetime.

Don’t let it pass you by …

The views in this column are my opinions. They are not intended as a forecast or a guarantee of future results.