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Friday, August 14, 2009

Buyer Beware

This is why David Rosenberg is a must read... from this past Tuesday's Breakfast with Dave:

The S&P 500 has rebounded 49% from those March 9 lows. Imagine how abnormal a 49% rally over a five-month span is — it’s unprecedented back to the 1930s. In the last cycle, it didn’t happen until February 2004 — 18 months into that bull phase where again there was tremendous policy stimulus and an oversold low to climb out of.

In addition, household credit was expanding rapidly. Even coming into what was a secular bull market in 1982, it took a good seven months to rally 49%, and that was with the benefit of a V-shaped economic recovery.

Going back to 1950, it has taken an average of around 18 months for the market to rebound 49% from a recession trough, not five months as has been the case thus far.

Let’s examine what the macro landscape usually looks like at that magical +49% point in the equity market rally:


Back to David....
We have never before witnessed a stock market rally of this magnitude over such a short time frame and absent anything more than tentative signs of economic improvement.

The only rally of this magnitude was the wild bear market rally ride in 1930, which was followed by a resumption of the decline that finally bottomed 82% lower in 1932.
Source: Gluskin Sheff