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The Bear Zone Stool Monthly - October, 2003


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Don't get me wrong, I think the world is wingohockingmoyamensinged. It's just the timing of the demise I'm concerned about. I've got a lot of work to do right now to get back in the swing after a short holiday so take my words with a block of salt. Here's Ackerman's take:


"Yes, it makes me very uneasy to be in the bullish camp, especially since I believe that anyone who?s convinced the economy is in a sustainable recovery is missing a few screws. But evidence on IBM?s and Citi?s charts persuades me ? against all logic ? that they will somehow make higher highs before doing their respective versions of the Acapulco cliff dive. "

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October-Crash Month?



Bears, meanwhile, can gloat over the fact that major crashes have occurred at roughly halving intervals - 89 years, 38 years, 18 years, 10 years - making this year time for another quake....Market Crashes Through the Ages



If the government ever instituted a National Market Crash Month, October would be the obvious choice. No month has a more negative reputation among investors..... Legends of the fall



In hopes of helping you avoid encasing your life savings in the next bubble or contributing to the next crash, we?ll be looking at the cr?me de la cr?me of crashes as a cautionary tale..... The Biggest Market Crashes In History



Errors in the perception of mean-reversion expectations can cause stock-market crashes....A Mean-Reversion Theory of Stock-Market Crashes

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I'd like to see more LT analysis here from Stoolie Bears. M2M is very short term and is becoming a bit of a log jam of bullishness as the mania continues. As bears we KNOW this thing is not over and many of us choose not to play the long side owing to the risk of holding long over night and not being daytraders. As I was reading cross-currents I had an idea. What if the 20s and 30s was a real anomaly with nothing in common with our current times. So I touch the Dow chart and erased the 20-30s bubble and bust. What resulted is interesting. Basically there were 2 complete LT bull markets in the US, the 40-50s and the 80-90s. the first took the index from 100 to 1000 and the second from 1000 to 10000. What followed was LT bear markets which are essentially range trading on a LT view.

What this is, of course, is a measure of inflation. What one used to be able to buy for hundreds of dollars now costs over $10,000 in many cases. Yet these 20 year bull markets are still ten baggers no matter how you slice it.That amounts to about 12% per year. The rest of the time (the bears) is a frustrating range trade. The 70s were acting much like we are now. Sharp spikes down (below the number 1000) followed by spike reversals and a return to the number. Is this what we have to look forward to? 20 years of short sharp waterfall declines to some arbitrary low followed by sharp reversals back to 10,000 or so?


We are bears so we must understand what a bear market is and how it works. In the American example this appears to be the way it works (at least so long as the US Peso is still accepted worldwide). Therefore, we should expect declines and reversals like we've seen since 2000 for the next couple of decades before a move to 100000 in the next LT bull run.


Well that's THOR's LT view. I now return you to the day by day machinations of the 3Ms. Matrix, Mania and Mafioso.


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Captain Hook


Here's a really good article that meshes well with my previous post.


Basically what I'm trying to get across is that if you're a bear by nature like me or at least a bear during bear phases you need to realise that bear markets (real ones) are very LT on the order of a decade or 2 and are often punctuated with market increases that look like bull markets. They are not and they all get retraced right up to the last one which will begin when valuations are reasonabull. So if one wants to make money one has to learn about psychology and market forces, how to monitor them and to take advantage. It's not simply a matter of short them to zero.


I'm still short as none of my shorts made it back up to the week's high except SMH and it didn't hold so I closed then reshorted it. Also added some EGO to add to my SIL and SLGLF. Bids on PAL and WHT outstanding. 95% short (with STOPS) and 10% long PMS.

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Here's another one:


Revealed: the great stock market swindle


Sunday July 13, 2003

The Observer


Periodic catastrophic declines that destroy years of accumulated profits are the norm, not the exception, writes [stock market historian] David Schwartz


Many experts claim investing in the stock market is the best way to save for the long run. Like many other claims made by financial commentators, it is difficult to prove or disprove this one because of the lack of objective data.


I recently created a two-century long inflation-adjusted UK stock market index to resolve this critically important issue.* Among the mass of information produced by this index, one fact emerged head and shoulders above all others. Investing in the stock market is not as profitable as the experts would have us believe.


During the 1800s, the UK stock market grew at a miserly average annual rate of 0.6 per cent after factoring out the effects of inflation. By recent standards, investment profits of this magnitude were pretty dismal.


. . .In many respects, the twentieth century was a different investment era. Investing in shares became a widespread practice. Many companies from different industries offered their shares to the public. Vast quantities of information became available to help private investors make more informed choices. But as far as investment profitability was concerned, the new century made little difference.


The 15 year reversal

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Scanning through Schwartz?s comments on the 15 year reversal again I am reminded of some stuff I was playing around with a while ago looking at long term valuation cycles in the engineering and construction sector.


For the US companies with relatively long trading histories I looked at I found something closely resembling a 15 cycle. Of course Schwartz?s research implies that this should be more like a 30 year cycle but adjusting past data for inflation this could actually fit nicely.


FWIW these cycles look like they could be bottoming sometime next year.


Not quite sure what conclusions to draw from this but it is certainly food for thought.


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For further analysis on the character of declines or crashes, here's an interesting article from Zeal. I understand that there is some skepticism about Zeal, but I did find this article from September 2002 interesting.


He discusses the character of crashes and says:


"In the entire history of the Dow 30 there have only been 30 days where the index has fallen by 6% or more in a single trading session. In the entire history of the S&P 500 there have only been 8 days where the index has plunged by 6% or more in a single trading day. In light of the historical data, the probability at almost any given time of a general US equity market crash and a VIX super-spike is exceedingly low, almost not even worth considering."


"The stock super-bears today advocating theories of another crash in US equities are way out on an obscure probability limb that probably can?t support their weight. Yes, the US indices seem destined to migrate far lower than current levels to reach undervalued status before the bust runs its course, but that doesn?t imply the mean reversion has to transpire in a day or two. If history is a valid guide, it will take many more months and maybe years for the bust to finish its job of mercilessly destroying bubble speculative excesses."




I am eager to hear folks thoughts on this.





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Reprinted from today's IDS. Will spare you the details of yesterday's daytrade long on SMegH. I am now making coin long on the down days and short on the up days so go figure.




Sorry for not posting in real time but I was focused today. The SMegH gapped up then quickly closed the gap but was rejected higher in the first period on good volume. Range extension to the downside was firmly rejected back to the middle. Ignoring the gap and strong rejections I chose to short the retracement of the range extension selling 37.77 just above the mid-point at the time. After a quick low volume probe to 37.60 in the third period the market trended higher on declining momentum. Against all sense except what the opening periods told me I didn't cover above the 2nd period or HOD and watched the position move against me. I doubled my short at 38.12 which again was very foolish as their was no evidence of a CIT. It was boner time but no mo-mo. We eventually peaked at 38.36 in the sixth period and a good sell-off, as predicted by the 1st 2 periods, ensued. At 3:00 and a quick move to the 37.50s, I moved to cover fearing the 3 pm stick save which puts a floor under these markets. (We are the stick save.) It was then that I found out my broker page was down. Assuming it was my computer I closed everything then restarted. When I got back in the SMegH had fallen to 37.30 which will be the LOD presumably as the stick save started from there. We are at 37.70 now with about 15 mins to go so nice save. Bad news was broker site, still no go.

It's very frustrating watching the market go against you while you listen to your broker's musak while you're on hold. Finally got my order in (buy to cover the lot at market) with a likely fill around 37.45 (hopefully). I say hopefully because they were getting a lot of calls as you might imagine and couldn't give me my fill. I'll annoy them for it after the close.


ThorAss SMegH Trader


PS: Oh and special kudos to BlackBelt wherever you are. Your great call on the SPew from months ago on the 1047.? high kept me in short when nerves were failing.


PPS: Complete bork. Actually got done 8 minutes after I called and over 20 cents higher. I lodged a complaint and it's being investigated. 20 cents don't sound like much but I had a big double position. Bustards.

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Hey Thorass,


Love the new avatar!!


I am trying to find one myself. I am looking for the sed no evil monkey that changes to a hear no evil then speak no evil, but haven't been able to find it yet.


I like yours...maybe I will have to give up and take something else.



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