The Bull Market is Dead!
Long Live the Bull Market!
M.A. Nystrom, M.B.A.
Man on the street in (the Republic of) China
January 28, 2005
1. The bull market is over
In the event that you weren't aware of it, missed it, didn't see
it, don't remember it or are consciously ignoring it, the bull market
in U.S. common stocks is dead. Over. Kaput.
Five years after the turn of the millennium, Y2K still stands in
the annals of history as the point that all three major U.S. indices
- Dow, SPX and Nasdaq - hit their highs and then turned tail, marking
the official beginning of the end of the Bull. Quickly came a dark
and ugly period of crumbling and decay, with day after day of miserable
market declines, right on through 9/11. It was not until almost
a year later, in Fall of 2002 before the markets finally found support.
In just two short years, the entire world was turned upside down.
Like being awakened from a pleasant slumber by a crack on the jaw,
a bullish world of peace, prosperity and optimism was suddenly transformed
into a bearish world of fear, uncertainty and war. The damage to
retirement funds and stock portfolios was so bad that people were
afraid to open their statements, afraid to be faced with the reality
that their dreams of summer villas, new cars and most of all early
retirements had evaporated with the mirage of prosperity.
Since those shocking lows in October 2002, the world seems to have
returned to a certain sense of normalcy for most people, albeit
a different, numb kind of normal. Once again we have to work for
a living. No more day trading, CNBC, or retiring on stock options.
And if the stock market has failed to register the 20% + annual
gains of the last few years of the twentieth century, it has also
managed to avert more of the surprising declines that characterized
the opening of the twenty first. War is a reality. Thankfully, there
have been no more terrorist attacks at home, and we've all gotten
used to ignoring the false terror alarms put out by the new Ministry
of Homeland Security. Likewise, we've gotten used to being searched,
prodded and poked when we travel by air, though we grumble under
our breaths at the inconvenience of it all (but only under our breaths
- this is a different America). Even the market managed to score
some decent gains again. The start of the war in Iraq in spring
of 2003 marked the end of the declines, at least temporarily. The
Dow regained most of its former glory (91% of it), and is still
hanging in above 10,000. And if the SPX and NASDAQ did not do quite
as well in absolute terms, they did manage spectacular rallies from
their all time lows that would make any bull proud (see Table).
|Table - Post
Bubble Market Performance
||All Time High
||Low to Date
Rise from Low
Retracement of All Time High
All of this is enough to lull the average investor back into a sense of complacency and lazy slumber, to begin once again dreaming of early retirement financed by stock market riches and housing equity gains. But those investors with a little knowledge of history, Elliott Wave theory and the signature patterns of market manias are less sanguine. The wise readers among you realize that the gains from the panic lows are nothing more than an impressive, multi-year, dead-cat bounce.
Indeed, we can say this with authority, for in spite of the impressive
gains of late, not one of the three indices has managed to crack a
new high and are in fact now turning back down with a certain urgency
not seen in the markets for several years. It was bound to happen.
The recent, multiyear rallies in the markets have taken place against
the backdrop of a deteriorating fundamental environment. More jobs
have been lost, interest rates are on the rise, and personal, business
and government debt loads are all soaring. The housing bubble hasn't
skipped a beat, picking up right where the stock bubble left off.
bounce was purely a technical rebound, a phenomenon common in
all sharp market drops. If you've still got money in this market,
now would be a good time to quietly head for the exit. . .before anyone
After nearly 3 years of market gains, 2005 will mark the turning point, with stocks likely resuming on the uncompleted downward spiral that began in Y2K. If you've made some profits, or have managed to recoup some losses in the last few years, it is time to take the money and run. Mark my words: The bull market is over!
2. Long live the bull market!
While the truth is plain enough to see with an objective set of eyes, very few investors with money at risk are blessed with such objective vision. Their sight remains clouded by the hopes and dreams that the bull market represents. The latest Investors Intelligence survey shows bullish sentiment among investment advisors at an ALL TIME HIGH, above even the heights reached at the Y2K peaks. The bull market is an emotional phenomenon that represents more than just rising stock prices - it is the embodiment of hope and optimism itself. As long as the bull market remains alive in the mind of the investor, there remains the possibility of that new sports car, the house with the ocean view, of early retirement, and telling the boss to take the job and shove it! If the bull market has died in the price of shares, it will continue to live on in the minds of guileless investors who continue to buy and hold, down the slippery slope-of-hope, to the end of the line where shares are worthless and dreams are demolished.
But it doesn't have to be this way. There is alwyas a bull market
is something, somewhere. Opportunity abounds for the ambitious, the
flexible, the nimble and the just plain smart, and it most certainly
doesn't have to be in the US stock market. It is common knowledge
that more millionaires were made during the Great Depression than
during all of the roaring 20's in the United States, and the same
will be true during the great period of transition we are living through
today. But part of this transition means that the center of wealth
is shifting inexorably away from the U.S. After all, the tallest building
in the world was made
in Taiwan! And take a look at Pudong (ever heard of Pudong?),
a gleaming new metropolis and industrial park in Shanghai that sprang
up in just under 10 years, like a field of mushrooms after a spring
rain, fertilized by the hundreds of billions of dollars that US consumers
send to China each year.
3. Turn and face the strange changes
A friend and colleague of mine who is a professor of Venture Capital
and Entrepreneurship at National Chiao Tung University here in Taiwan
emphasizes over and over to his graduate students that big changes
create big opportunities. From his perspective, the dot.com boom and
bust was necessary, and served its purpose; 10 years after the debut
of Windows 95, the world is a different place thanks to new information
communications technologies (ICT) that have emerged. They were invented
during the boom; now their full potential is finally being put to
use around the world. While only a small number of the bubble-era
companies survived the bust, the outlines of the colossal changes
that they are creating can already be seen taking shape.
As Americans, we tend to think that we are at the center of the universe
and always will be, and the insular, corporate controlled media does
nothing to dissuade this idea. But the world is a big place, and big
changes are in the air. Just take one whiff of the howling winds,
and I dare say that you can smell the changes, rolling in like a storm.
You may be able to ignore them for a little while longer, but nothing
can stop them. While the Corporate press keeps the American public
entertained with politics and war, it smugly pooh-poohs China's growth
as a bubble. But the optimism that hangs in the Asian air is as palpable
as the pollution that clouds its skies. Shanghai is a city on the
move and people in the daily course of their lives walk so fast down
the streets of the city that they are running! America may still be
the best place for ideas, but Asia has emerged as the best place to
finance, produce and realize them.
As an American living in China for the past year (to be specific,
the Republic of China on Taiwan), the world is starting to look a
little different to me. There is no doubt that America is an empire
and it still exercises its economic and cultural might (more on this
in the future). But in China, a baby giant has been born, and he is
hungry and he is growing. There is a new game in town, and it is played
by international rules. Open your eyes - the bull market is dead!
Come learn the new game or risk being left behind. Change creates
opportunity. Long live the bull market!
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