The Bear Market Blog

Some of you may remember my Bear Market Report that I wrote back in the 1990’s.  Due to time restraints, I stopped “publishing” it.  But I am at a point that there is nothing good on TV at night so I thought I’d catch everyone up on my ideas surrounding the stock market, the economy, and societal trends.  After years of studying very smart peoples’ ideas, I have what I believe is a good idea of how mankind “ticks”.  I’d like to share some of these ideas and I hope I spark an interest. Not only that, I hope to help you as an individual make good financial decisions for the future.   

First of all, it is my firm belief that the mood of society changes from positive to negative to positive (guess what the mood is now!) and cycles over and over.  We can go back in history demonstrating this.  These “mood swings” affect many things including the stock market, the economy, whether we’re at war or at peace, clothes fashions, car styles, even politics (go figure!)  Man’s(as in Homo Sapien) societal outlook as part of nature has these cycles of good mood and bad mood, to help restore a balance just like everything else in nature.  When an extreme is reached, the pendulum swings the other way.  The good news is, the move forward is always further than the move backward.  Thus mankind’s continued development.  The bad news is we have to endure the periodic “resetting” of extremes to keep the balance.

If we go back in history, let’s look at the cycles of good mood and bad mood.  I’ll mention a period and you tell me good mood or bad mood:

1.       The Revolutionary War years

       2.       The Industrial Revolution
       3.       The Civil War years
       4.       The “roaring twenties”
       5.       The Great Depression
       6.       The 1950’s
       7.       The Vietnam War years
       8.       The 1990’s
       9.       Now.

This simple test makes my point.  One can “zero in” on history to be more precise.  I will develop the “Now” period later but I think you are seeing where I am going.

My next important point is “the mood of the times determines individual events.  Events do not cause a particular mood”.   So when society is in a good mood, mostly positive events occur because people in general are in a good mood.  And vice versa. 

Let’s take a look at a list of words associated with differences in mood.  You’ll see my point:

Positive mood                                Negative mood

Acceptance                                    rejection
Adventurousness                          protectionism
Agreeableness                               antagonism
Allowance                                       restriction         
Centrism                                         radicalism
Certainty                                         uncertainty
Ebullience                                       depression
Forbearance                                   anger
Happiness                                       unhappiness    
Security                                            fear
Trust                                                suspicion

And as Hillary recently said: "bridges instead of walls" She gets the idea!

Well, you get the point.  Think back to the periods mentioned above and see if you can match those
times with the listed feelings.

              We can actually measure society’s mood!  When society is in a good mood, they buy things and the economy is good and companies make more money and the stock market goes up!  And of course vice versa.  So how about using the stock market as a barometer for the mood of society!  So let’s look at the Dow Jones Industrial Average (Dow) over many years. 

Note that, generally it has gone up, this chart starting from 1885. 

Yes there are setbacks, some severe.  But mankind’s barometer shows that at each downturn, there is recovery to new highs, although sometimes taking many years.  Currently you could say that since 2009, we are in a BULL MARKET:

But, before our discussion goes forward, there’s a caveat here.  I need to digress for a moment.

              So suppose you went to buy a car in 1955.  A Chevy would cost you $1600.  If you went to buy one now what would it cost?  $24,000!  Woah, what happened?!  INflation, of course.  At one time, the U.S was on a gold standard.  “A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold” (Wiki).  So each dollar was backed by a unit of gold.  In 1955, $32 equaled an ounce gold.  So if you went to buy a Chevy, it would cost you 50 ounces of gold.   But suppose the government decided to get rid of pegging dollars to an ounce of gold, allowing the price of gold to “float”.  In other words, create fiat money.  Guess what?  That’s what Nixon did in 1971.  Now this is a whole new kettle of fish that will be explained in future blogs and why it is important.  Suffice it to say, as today’s gold price is at $1245 per ounce, it would cost you only 19 ounces of gold!  Wow.  A car today would cost considerably LESS than in the 1950’s if we bought it in gold!  I’ll explain why such a decrease in price occurs in a later blog. 

             

              Now to my point.  Suppose we still had the gold standard.  Prices would be way lower because the government would have to keep enough gold on hand to exchange for the number of dollars in circulation.  There would be very little inflation.  Right now, the Dow mentioned above is currently at 17,800 points.  If we looked at the Dow back in 1929, it was at 381.  Gold was at $22 per ounce.  So it would take 17 ounces of gold to buy one “share” of the Dow.  Gold is now at $1245 per ounce, how much is the value of the stock market in gold ounces? 14.5 ounces of gold!  So the Dow is worth LESS now in REAL money than back in 1929!  So in inflated dollar terms the stock market is at 17,800 but in hard currency (gold)  terms, the market is worth less than in 1929!

              Here’s a chart of gold up to 2011:

Note     Note that after the unhitching from the dollar and allowed to “float” in price, gold prices soared due to inflation.  So if the “price” of gold is going up, what do you think the value of the dollar (and the value of everything else ) is doing?  Right!  Going down!

Now back to the crux of the situation.  In dollar terms, the Dow is way up over time.  We could say that the Dow is in a BULL MARKET.  But what does the Dow look like if we used REAL money like gold to value the Dow?

Voila:

So in REAL MONEY terms, we are in a BEAR MARKET and have been since 1999!  THUS THE NAME OF THIS BLOG!  A bear market connotes a downturn in mood.  Let’s look again at the feelings of society during a bear market:

rejection

protectionism

antagonism

restriction         

radicalism

uncertainty

depression

anger

unhappiness    

fear

suspicion
walls

And of course there was 9/11.

So here’s my premise.  Right now we are in a downturn in mood, a bear market, where the economy is stagnant, people are unhappy with their perceived situation crying for change, we’re at war.  REAL stock market prices are down.  There is a lack of cooperation between groups of people.  There is anger and hostility, and finally there is Trump and Sanders, two “outsiders” who understand the downturn in mood of society and are certainly taking advantage of it!

To finish, this is not restricted to the USA.  This is happening globally.  Look at what has happened since 1999!  Greece, Turkey, Syria, Iraq, Russia, the EU, Afghanistan, Somalia, Ukraine, the list is endless.

In my next blog we’ll look closer at some of these issues and get an idea of where this whole thing is going.

In the meantime, questions and comments are welcome and remember what I said, mankind continues to make progress over the long term.  We need to be patient and wait for the coming upturn!  It will surely come!