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Jeff Cooper



Написано @ | Mon, Jan 15 at 08:41am:

Market historians know the history of the markets and the Fed. According to Ned Davis Research, the Fed has embarked on an easing cycle 21 times since it was founded in 1913. On 17 of those 21 occasions, the first rate cut marked a market bottom. The second cut marked a bottom on three of the remaining four occasions. Even on the fourth occasion, which was November 1929, the market rallied until April 1930, before dropping until 1932, when the Fed finally cut rates again.

The average one-year gain after the 21 initial cuts was 20% on the Dow; after two cuts, the average one-year gain was 28%. It's a compelling historical picture that does not favor being overly bearish here.

After a 20-year bull market, it would not be too surprising to see a two- to three-year bear market, punctuated with rallies. But even if the 1929 cycle is exerting its influence — which I warned about in this space at the end of August, after the 90- to 100-day summer rally that mirrored the Memorial Day to Labor Day rally in 1929 — it's worth noting that after the October crash in 1929, the final low test was Dec. 20.

Moreover, many of the highs and lows in 1929 played out similarly to the dates of the highs and lows in the year 2000. Also, before this last easing in rates, the Fed hiked rates six consecutive times — just as in 1929.

The implication is that even in 1929, we did not go lower after late December until many months had passed. For us to go lower now would imply a worse economic situation today than there was in 1929. Most of us would agree that now the fundamentals are different. Of course, in an age of derivatives, immediate access to the equity and bond markets, and extreme participation in the markets by individuals, you can't underestimate what might occur once a bubble bursts — especially on the time axis. On the other hand, you can never underestimate the sharpness of bear market rallies, once the speculative juices start up.


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Jeff Cooper - @ on Mon, Jan 15 at 08:41am


 




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