Examinations of Past Recessions

What are the Signs before the Great Bull? Learning from the Past

In the last few weeks, there are quite a number of good news coming from the market. The banks are scrambling to announce that they are making money at last! After losing trillions since Oct 2007. The US real estate seems to have a slight recovery with an increase in new houses built. Commodities prices are up too with oil prices hitting $49, seeming to indicate that factories around the world are starting to put their engines into action. Looks like we are close to a recovery of the market. However, what are some of the signs before the big recovery takes place? Let's take a page from history

The Recession Next to the Great Depression

In the US history, there has been 3 major bear market which were declared as the worse recession since the Great Depression by the press. There are a total of 8 recessions since the end of WWII. To make our comparison fair, we examine 4 of the worst stock market drops in the 20th century and their charts.

With a grand loss of 51%, it is the worst bear market since Great Depression. The problem with serious recessions is that fundamental data cease to work and economic data continues to be depressing way after the stock market starts to recover. The only way for now is to examine the psychology of the investors which means, looking at charts.

Based on what we see, the recent rally seems to be a fluke rally. There will be another bottom either of the same level as the last bottom we see at Dow 6600 or anywhere between 6600 to 8000. Therefore, the range for now should be a good time to enter. Based on the past bear markets, the period between the 2 lows is between 2 to 8 months. Since our recession is somewhat in between the worst and best, the market may take another 3 to 5 months to hit the next bottom, which us between June to August.

Strategy For Now

My stand on China and commodities especially energy related commodities still stands. These 2 sectors remains some of the best performing sectors for 2009. One of my minor recommendations, financial stocks, are making a big comeback of 25% in 2 weeks. Citibank jumped from $1 to $3 in 2 weeks. Financial stocks are still pretty risky in my opinion with big swings of up to 50% within a month. Buy financial only if you can stomach the risk. An interesting sector that has been doing well recently is Taiwan, due to the boost in the economic relationship with China. However, with their economy still mainly dependent on exports, both Taiwan and Singapore will probably be the least potential markets within the emerging markets sphere.

Cartoon Quips of the Month

Should us, Asians, be outraged with the $165 millions bonus paid to the AIG trading and derivatives team? After all, the US government are printing money to rescue them and we are the ones buying up their US treasuries to fund all the bailouts. And where do our government get the money to do that? Our CPF? Our tax?