Global Agenda: Ba, Ba, Bear

The background babble to the latest slump in the American share markets has been a slew of articles and items trumpeting that this is now a bear market.

By PINCHAS LANDAU
The background babble to the latest slump in the American share markets - and those of most of the rest of the world, for that matter - has been a slew of articles and items trumpeting that this is now a bear market. In other words, until now, what we were watching was just falling prices, but now it's official: This is a bear market. The basis for this stunning revelation is that the Standard & Poor's 500 Index, which is the best proxy for the overall market, has fallen by more than 20 percent since its peak last October. Note, in passing, that the historic peak for this key index was reached in October 2007 - eight months after the first signs of what would soon be universally called the sub-prime crisis appeared, six months after the first round of problems in the money and bond markets, and three months after panic set in across all the markets, as the facade that this was a minor problem relating to a bunch of condo-flippers in Miami finally cracked. So much for the widely believed but baseless urban myth that the equity market is a forward indicator of the real economy. In any event, since that heady high on that bright and cheerful autumn day (it was so in the trading rooms), the index has been in a downtrend. After sharp ups and downs along the way, the downtrend this week crossed the point at which the cumulative decline reached 20%. This was the excuse for a flood of learned commentary in which the key features of bear markets were laid out, discussed and analyzed. The starting point is, of course, that a decline of 20% marks a bear market. Now that we are officially in one, it is right and proper to explain to people what they need to know, expect and do, to survive in that horrific situation known as a bear market; because, after all, the commentators, analysts and assorted wise men (and occasional women, but there don't seem to be many of them in this spiel) have lots of experience of bear markets and can distill that data and wisdom and impart it to the investing public. Having plowed through a good chunk of this drivel, I can understand why in the blogosphere, the cognoscenti refer disparagingly to the general and investing public as "sheeple." Anyone reading the "dummies' guides to bear markets" must conclude that if this is what the public wants and appreciates, it is comprised of sheep-like fools who will swallow anything served up to them. But even within the context of sheeple happy to munch garbage, there is something uniquely American about this bear market babble. The pathetic obsession with measurability, the pseudo-sanctity of statistical data, the conviction that historical averages provide guidance - in short, the belief that the real world works like a baseball league - is a case study of America at its worst. In the X number of bear markets since 1940 (or 1900, or whenever else you might choose in the brief history of the USA), their average length has been Y days and the average decline of the S&P index during them has been Z percent. After having reached the (entirely arbitrary) 20% mark that distinguishes a mere market decline from a bear market, the average remaining period until the market hits bottom is L days, and the market falls further by an average M percent, with interest rates moving an average N basis points... and so on and so mind-numbingly on and on. None of this actually means anything or is useful to anyone, because each market downturn has been different - due to changing domestic and global macroeconomic factors and market dynamics. Beyond the basic fact that all markets undergo periods of decline, which vary in length and intensity and vary even more at the level of sectoral performance, and beyond the even more basic fact that periods of decline come to an end sooner or later, to be followed by periods of rising prices - beyond that, there is no substance underneath the froth of statistical factoids. And if you didn't know those basic facts, you should stick to watching baseball. landaup@netvision.net.il