Three Fridays ago, (January 26) the Dow Jones made its latest BEV Zero, a new all-time high. Nine trading days later (Thursday, Feb. 8) it broke below its BEV -10% line in a very dramatic fashion.

The BEV plot seen below begins at the absolute low of the October 2007 to March 2009 -54% bear market. The post credit-crisis advance took the Dow Jones up over 20,000 points in nine years.  But you wouldn’t know that by looking at the Bear’s Eye View (BEV) chart below.  What we see below is the advance as seen in the eyes of Mr.Bear; each new post credit-crisis high in the Dow Jones is equal to a Big-Fat Zero (0.00%) as that’s how Mr. Bear sees them.  What the big furry fellow wants to see is how many percentage points he can claw back from each of the bulls’ new highs. And that’s exactly what we see below; new highs (BEV Zeros) and percentage declines from each BEV Zero since 09 March 2009.

Since March 2009, the Dow Jones has seen deeper corrections from a BEV Zero. But this was the first double-digit percentage decline that took only nine trading days. That’s got to make us wonder if something is different this time.

C:UsersOwnerDocumentsFinancial Data ExcelBear Market RaceLong Term Market TrendsWk 535Chart #1   DJ BEV 09 Mar 09.gif

So I took a historical look at those times the Dow Jones moved +/- 10% (or more) in only nine days in the chart below.  And yes such moves, and much greater ones are common, if not always frequent occurrences – IN BEAR MARKETS.

The latest nine day -10% move occurred on Thursday last week. Is this an isolated spike in volatility occurring outside the context of a bear market?  There are a few of these seen below, but not many.  Or are we seeing the first volatility spike in a bear market cluster yet to be formed?

C:UsersOwnerDocumentsFinancial Data ExcelBear Market RaceLong Term Market TrendsWk 535Chart #2   DJ 9Day 10% Moves.gif

The past week has seen more than its fair share of excitement. In Mr. Bear’s report card below we see seven extreme days, three NYSE 70% A-D days (extreme breadth) and four days of extreme market volatility. From a market that refused to correct a simple 5% in the past eighteen months, it has now collapsed by over 10% in only nine NYSE trading sessions. This makes me suspect something has changed in the past two weeks. Historically, such concentration of extreme days doesn’t happen unless something ugly is bubbling beneath the surface of the market.

Again this week I searched my files for old charts I haven’t published for a while and came across one plotting the Dow Jones daily volatility’s 200 Day M/A, using the absolute value of each day’s percent movement from the previous day’s closing price. Its resemblance to the Dow Jones’ 200 count, the number of Dow Jones 2% days (four seen above) in a running 200 day sample, is remarkable.

With rare exception, seeing the Dow Jones daily volatility’s 200 Day M/A spike above the 1% line marks a bear market bottom, and the degree to which it rises above the 1.0% line indicates the severity of the market decline.  I marked the April 1942-52.2% bear market with a green triangle as this massive bear market is one of those exceptions, a huge bear market that few people paid any attention to.

After the market catastrophe of 1929-32 and the 1937-38 bear market, both events clearly seen in the chart below, the public was out of the market and would not return until a generation with no personal memories of the trauma of the 1930s came into adulthood. Hey Baby Boomers, I’m talking about us and our retirement funds invested in the stock market.  At present, my generation is very exposed to the ups and downs of Wall Street, but I’m digressing from the April 1942 -52.2% bear market bottom.

C:UsersOwnerDocumentsFinancial Data ExcelBear Market RaceLong Term Market TrendsWk 535Chart #a   Dow Jones Volatilty 200 Day M_A.gif

After the depressing 1930’s, my parents and grandparents’ generation were more concerned about the return of their money than the return on it, and kept their savings in the bank. In truth, for them it wasn’t a bad decision. But today that option isn’t available to us baby boomers.  

Decades ago deposits from savers were essential for the banking system, so they encouraged people to save money and banks offered competitive interest rates for deposits.  But banks today get their money from the Federal Reserve (at the Fed Funds Rate) so banks don’t need deposits from savers or have to pay a decent rate of return on saver’s deposits. In fact, the banking system find people who want to save money annoying. Rather, they encourage people to bury themselves in consumer debt and to invest for “the long term” in the stock market to fund their retirements. What could go wrong with that?

At the time of writing this article, the “policy makers” have fixed interest rates for savings accounts at an annual return of 0.14% and the five year US Savings Bond (Series EE) pays only 0.10%. Junk bonds yielding over 6% (what banks used to pay) looks pretty good in comparison to income-starved retirees.

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