When will this recession end? Are we really in a depression ? (an extended recession)? When will we get back to good times? These are questions that are on the minds of most people today, as we near the start of 2009. If you remember a year or even six months ago, many main stream economists were in denial. Many said that we should be out of this downturn by the end of 2008 or first half of 2009. It's not happening.
The Globe and Mail newspaper in Toronto two days ago featured a story called Taming the unwelcomed beast. In it, they included the following chart -A history of bear markets in US stocks (don't know why they missed 1980-81?, anyway, using their data you immediately notice a few interesting patterns. The two rows that I highlighted in red are considered Great Depressions)
A history of bear markets in U.S. stocks
Based on monthly U.S. dollar returns.
|Peak-trough||Months to||Months to|
|March 1876||Feb. 1879||- 33.11%||15||20|
|Sept. 1882||Nov. 1885||- 20.76%||21||17|
|Jan. 1893||Aug. 1897||- 25.12%||4||48|
|Sept. 1902||Nov. 1904||- 25.79%||13||13|
|Sept. 1906||Dec. 1908||- 33.97%||14||13|
|Nov. 1916||May 1919||- 27.98%||13||17|
|Oct. 1919||Apr. 1922||- 22.78%||22||10|
|Aug. 1929||Jan. 1945||- 83.41%||33||151|
|Nov. 1947||Oct. 1949||- 21.76%||6||35|
|June 1962||Apr. 1963||- 22.28%||6||10|
|Dec. 1968||Jan. 1972||- 31.45%||19||19|
|Jan. 1973||Sept. 1976||- 43.34%||21||24|
|Sept. 1987||July 89||- 30.21%||3||20|
|Sept. 2000||March 06||- 43.26%||25||42|
Note: All returns assume full reinvestment of dividends.
DOUGLAS COULL/THE GLOBE AND MAIL // SOURCES: PROFESSOR ROBERT SCHILLER, WWW.INDEXFUNDS.COM (2001) AND S&P/CITIGROUP.
In almost every case (except for 1906) the months to trough (the bottom from the previous peak) was a lot quicker then the leg back up. Months to trough range from 6 months in 1962 to 33 months in 1939.
The loss in stock value today (over 50% in S&P 500) has already outperformed each of the above bear markets except 1929, which saw a 83% drop in value and took 15 years to recover
I'd say we are closer to the 1929 example because we have a number of consecutive leveraged bubbles (close to 15 by my count) still to burst.. the next most dramatic being the commercial mortgage crisis bubble in 2009 and the start of a number of US state governments going bankrupt-watch for California to lead the pack.
The longer it drags out, the less we'll be able to deal with some of our more pressing societal problems, such as energy security, switch to alternatives, peak oii and peak gas, climate change in the form of global cooling (not global warming) and "strategic materials" and water shortages in the next 2 decades....On the upside, the recession / depression may force us to adjust and live in a zero growth sustainable economy...but I digress...back to the analysis.
On the way up, we see that the months to recovery (bottom back to the pevious peak) could stretch from 10 months to 151 months (or 15 years and 4 months as we saw during World War 2.
If you add up the two columns(months to trough + months to recovery ) you get some indication of the range of when we could be out of a recession / depression (R/D) (pick your label)
Assuming that the downturn started in Oct 2007 in the USA, a 1962 like (R/D) recovery will take 16 months out from Oct 2007 or Feb 2009 (that's defintely not happening)
A mild 1906-like (R/D) recovery will take 27 months or Jan 2010
The averge for the chart was 46 months or 3 years and 10 months. That puts us into Aug 2011
A more extreme (R/D) recovery will stretch us out 53 months to Feb 2012 like the recession of 1893 did or 77 months like the 2000 (R) recovery did to March 2014, just to the point where NASA says we may be feeling our first bout of global cooling due the low sun spot projections. Great ..hit us while we're down !!!
At the worst case scenario, we could mirror the 1929 depression (punctuated by the World War),which lasted 184 months or 15 years and 4 months putting us one and a half decades away, topping out in Feb 2023 ( the start of the next solar sun spot cycle minimum)
Notice that bear markets tend to cluster and get progessively worse (longer time for recovery). ie the 3 bear markets at the end of the 1800's lasted 35, 38 and 52 months respectively. The 5 bear markets before 1929 lasted 26, 27, 30, 32 and 184 months. The pre-oil shock bear markets lasted 16, 38 and 46 months and the post 73 bear markets were 23 and 77 months long.
How long will it take todays' dozen or so over-extended credit bubbles to burst and de-leverage? Your guess is as good as mine, but it won't be soon. Prepare for the long haul and watch/anticipate opportunties arising out of crisis. The best case, as far as I can see, will be a long anemic decade of no or limited GDP growth (in the US and a few more percent in China or India), financed by your individual savings or what you earn (like in my parent''s days) and not unbriddled credit (natural 100 year credit expansion/contraction cycle).
Walter Derzko, Smart Economy, Toronto
Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression featuring 45 opportunity scenarios.
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