Why the bear market is not over

1. Why the bear market is not over

2. We have entered a secular, not a cyclical bear market.These �Super Bear� markets can last for years

8. A Key Lesson about Markets �Bear� Markets usually parallel the �Bull� markets that precede them �Super-Bear� markets traditionally follow �Super-Bull� markets

10. What Happened After?

11. Past Secular Bear Markets

12. Credit drives the excesses in the stock market & economy

13. Greenspan on Excess Credit �The excess credit which the Fed pumped into the economy spilled over into the stock market - triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a constant demoralizing of business confidence.� Alan Greenspan, Gold and Economic Freedom, 1966

17. Credit excess leads to �malinvestment�

23. Corporate America had the wind at its back in the �90s, but faces stiff headwinds going forward. For example:

25. Economy - gotta keep it goin�

26. Real Estate Finance Has Been the�Key�

27. The Economy - Now What ? Consumption will slow as savings must increase Because consumption has created 88% of recent economic growth, this will decimate the economy Inflation concerns & dollar weakness temper FED�s ability to cut further & rates must now increase. Asset quality will slide, more debt creates even more problems for the overleveraged Excesses of overcapacity & consumption must be corrected through retrenchment, not from & over-even more excesses Gold will skyrocket as bailouts intensify

28. In our view, there is a risk that foreigners will reduce holdings of dollar-based assets. Reasons could include: 

32. Are we nuts ?

33. Goldman Sachs Economist

34. The Bubble Fix

35. Larry Lindsey on the Economy �We have had 18 years of expansion, & it has been an extraordinary period � There is a big imbalance� Last year, the private sector spent $700B more than it earned after-tax, 7% of GDP. We have never been there before. The public sector ran a surplus of 3% of GDP. And we took in 4% of GDP by borrowing from abroad. We are in uncharted territory � We are borrowing increasing amounts. � It looks like this year (cur acct deficit) is going to come in about $520B. We are going to need $650B in additional cash in �02, probably $800B in �03. � and it won�t work. � Something has to give.� Larry Lindsey, White House economics adviser, May 2001

36. Conclusions Printing $ simply attempts to re-ignite the bubble, problem in system is too much debt, not too little If money growth was the key to economic growth, then Latin America would be the world�s leader Rate cuts can�t save us this time, won�t cause more router or PC sales Constraints are now inflation, exchange rates, current account deficit and credit quality. Economy hasn�t crashed due to reckless mortgage growth that�s perpetuating the R/E bubble Once more credit no longer helps, you get �pushing on a string.� We�ll be lucky with Japan�s outcome

37. Some Optimism � �The world is a resilient place. And America stands for a special resilience and resolve that has shaped its destiny for 225 years. I have no doubt that the United States will weather this storm and come out the other side with an even greater sense of renewal and determination. That doesn�t mean it will be easy. Yet as day follows night, healing follows pain. And recovery will eventually also follow recession. This time is no different. Sadly, it�s just a lot more painful.� Stephen Roach