Investor who predicted the start of the 2009 bull market: Beware of a double bottom

davfor

Nothing new here but it may be worth repeating...

Legendary investor Mark Mobius.....was asked Monday if the recent 20% rally off the bottom of the quickest bear market in history signaled an all-clear for investors...Mobius cautioned investors....“I think it's a little early to predict that because given the lockdown that we have seen globally in so many countries around the world, the impact of this lockdown on businesses, it's not going to be seen immediately..... I believe that once the numbers start coming in, people will be somewhat disappointed.”

...historical bear markets on a global scale have averaged a larger 30% to 50% drawdown spread out over the span of roughly two years. “The most expensive words in the world are ‘This time is different.’ I don't think this time it's different,” he said. “I think we’re probably maybe going to do a double bottom, jumping down again and pushing up again.”

“The recovery may take longer than people expect,” he predicted, barring any absence of a New Deal-like work program. “It's going to be a real challenge to get these people back to work.

https://finance.yahoo.com/news/investor-who-predicted-the-start-of-the-2009-bull-market-were-not-in-the-clear-yet-104234346.html

johnN

So many of these pundits will come of woodwork and call market bottoms or nearing bottoms..double dip..impending doom...etc...

The reality is almost impossible to pick bottom...they maybe ><50% right at the time...Maybe you maybe more right than them

Think best stick w your investing plans, have a large stomach for preparation for worst outcomes if you consider getting very aggresive portfolio (high risks high rewards)

Lastly get 24 packs of heneiken beer, large rolaid bottles. Prepare for continue shutdown for two -four wks. Prepare to stand in lines / wear your masks at grocery stores..most importantly continue to wash your hands.

Also Be thankful of what you have, appreciate what others do for you, and glad to have as another day 6 feet above.

[IMHO]

Thankyou for the article

Rbrt

Thanks for the post davfor. John is probably right that no one knows - after all, who sold in January when Wuhan was going into lockdown? That being said, you look for confirming opinions and he confirms mine. here’s his investment advice from the article (which I won’t be following):

Keep some reserves
That said, Mobius did concede the fact that the drawdown has brought on what he sees as attractive opportunities in some emerging markets like China, India and Brazil. For an investor looking to diversify, the noted emerging markets guru recommended a defensive strategy of allocating at least 10% of a portfolio to gold and 30% to 40% in emerging markets while saving a large cash cushion should the market take another leg lower.
“The reason why I think it's a good idea to keep reserves in cash [is] because I don’t think it’s over,” he said. “If you've got millions of unemployment claims, that means a lot of people will not be returning to the same jobs that they were at before.”

expatsp

@Rbrt that's my feeling too, that we've got another leg down, but that means I (and perhaps you) are fighting the Fed, which clearly now has a "whatever it takes" mentality. Add to the Fed a couple trillion in stimulus... I can see what some folks (not me) are buying.

LewisBraham

Am I the only one who finds this headline funny with an amusing double entendre? I guess the fall right after the first recovery in the double bottom is where one suffers incontinence.

davidrmoran

I like Hulbert's researches usually (@LB, do you read?)

https://www.marketwatch.com/story/stocks-will-revisit-their-coronavirus-crash-low-and-heres-when-to-expect-it-2020-04-09

WABAC

I wonder if the economists predicting 2nd quarter GDP contraction at 30-40% are among the people buying into this rally?

expatsp

I hope Hulbert's right, because I've got a fair amount of dry powder that I'd love to deploy, but it seems that everyone believes the same as Hulbert does. (Have you heard any analyst saying, Now's the time to back up the truck?) If you're looking ahead a year or so, expecting interest rates to remain zero while trillions of stimulus flow... Maybe equities are the place to be. Maybe one shouldn't fight the fed.

LewisBraham

@davidrmoran I like some of Hulbert's articles and read them, but I am generally not a fan of historical market performance analysis without analyzing the fundamental root causes of that performance. If it rained yesterday and the day before, does that mean it will rain today? Or to quote Heraclitus: You can't step in the same river twice. We are always looking to the past for guidance as to how the future will be because we have no choice. But I think that past analysis must be based on causality and one must see similar causes in the present to make a similar assessment in the future. In other words, the key question is what causes of market moves remain constant? Did the shape of a chart drive the market in the past? I find that highly doubtful. The term "tea leaves" often comes up with regard to technical analysis and I, with certain exceptions, agree with it. So the market went down x% during the last crisis and reached a "double bottom." Will that cause a double bottom today just because it happened in the past? I don't think so. I think one must look at fundamental reasons for market slides in the past and see what echoes there are today. That's why I find remarks like this in Hulbert's piece rather pointless:

One way of summing up these historical precedents: We should expect a retest of the market’s March low. In fact, according to an analysis conducted by Ned Davis Research, 70% of the time over the past century the Dow has broken below the lows hit at the bottom of any waterfall decline.

The question is why did we retest those lows previously and do similar causes exist today? The stat 70% of the time is relatively meaningless. Every day is new.

All of that said, I think there is a case to be made for more downside once the unemployment numbers come in, GDP and the earnings numbers for the first and second quarter come in. Unemployment, GDP and earnings have been fundamental drivers of stock performance in the past one could make a strong case persist today. But I think predictions of double bottoms or rapid recoveries are dangerous, albeit interesting to contemplate.

The wild card which must also be analyzed is the virus itself, and it is wild because it is largely unprecedented in market history. I don't think the Spanish Flu compares because the times and market were very different then. These new causes must also be analyzed to make predictions and they are perhaps the hardest to understand. I hate to say this because it's depressing but I think probably the most important stats for predicting where the market will go right now are infection rates and death counts, not previous market bottoms or the Vix. And that's for short-term market moves. For long term market moves, I would be analyzing and thinking hard about how such pandemics might change society overall--what industries and economies benefit and what are hurt by it? Exporter nations for instance may struggle. What does this mean for global trade?

Zolta

Thank you, Lewis Braham, for the most cogent analysis of opinions on past behavior predicting future markets that I have read. Zolta