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Sunday, September 20, 2009

Past Market Experience Has Watchers Cautious

*When I read the book, When Genius Failed, my outlook on a buy and hold strategy had changed forever. Why? Because I knew that these mathematical genius smarty pants had an outdated modeling system. They were using the past to dictate how the market would react in the present and future. There was only one problem: They didn't factor in all the trappings of the New World Order of "not like your fathers oldsmobile." So why should I be worried about the chart below? Because the fed and treasury think the solution to all things wrong today are price stabilization and that if they only do what there forbears didn't do (print as much money as possible so as to make the dollar a worthless piece of toilet paper) then the left hand shouldn't see what the right hand is doing and by the time they do we will be out of this mess. But there is one small teeny tiny problem: we have more people with less jobs and half a brain won't get you a job even at KMart. So no job equals no credit equals no house equals barely making it as it is mother ffer.

One problem with these rallies is that they tend to lack follow-through. More than half the gains tend to come in the first six months. The rallies of 1929 and 1932 each lasted less than six months. In 1932, the Dow rose 94% in two months after it hit the low point of the Depression years, but then fell 37%. The 1933 bull market lasted somewhat longer, but there again, if you bought after six months you missed most of the gains, and then saw stocks fall back below the level at which you bought.

The stock market decline that preceded the current rally was much less severe than the 89% decline of 1929-32, and few expect stocks to endure as much turmoil as they did during this period. But analysts said the experience of the 1930s remains an indicator of what may be ahead.

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