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Historical Bear Market Contractions

Thursday, April 12, 2007 | 07:30 AM

in Investing | Markets | Psychology/Sentiment | Technical Analysis

With the Dow's 8 consecutive day winning streak now over, its a good time to think a bit about the past. If you haven't figured it out yet, I'm a student of market history. I frequently look to past situations to draw (admittedly imperfect) historical parallels.

To me, the popular 1995 soft landing scenario is hardly parallel for a number of reasons. I beleive the 1972-73 era is a much better parallel in many ways -- the massive liquidity injection we've seen being the prime difference; the same goes for Doug Kass 1937 comparo.

Check out this chart from the 2005 bidecennial report from the SIA:
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click for larger graphic
graphic courtesy of SIFMA

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Not that what has happened in the past is determinative -- too many variables need to line up just so -- but it certainly can be instructive about what might happen.

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Note to WSJ Graphic Department: Its been my experience that when depicting a longer time period (107 years!), a logarithmic chart is far more effective way to present the information, and avoids that "skyscraper effect."

(Just one man's opinion, and you know I love your work)

Source:
Equity Ownership in America
Securities Industry and Financial Markets Association, 2005
http://www.sia.com/research/pdf/EquityOwnership05.pdf

Dow Ends Run at History
Stocks Swing and Miss, And Streak Dies at 8;
Record of 1897 Is Safe
E.S. BROWNING
WSJ, April 12, 2007; Page C1
http://online.wsj.com/article/SB117634358273067250.html