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Bull Market StewUnder a New Presidential Administration

Bull Market StewUnder a New Presidential Administration

The Generational Opportunity

Here’s the rolling 40-year returns of T-Bills and T-Bonds over the last 70 years:

Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management

The Generational Opportunity

Here’s the rolling 40-year returns of Stocks over the last 70 years:

Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management

The Generational Opportunity

Let’s look at what happened to US stocks the first time they earned less than 4% per year for a 40-year stretch, as they did in 1941. Here is what happened the following 5, 10, and 20 years following that event:

Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management

What are the Ingredients?

Bull Market Stew

Bull Market Stew

Ingredients1. One or more major Bear Market

declines in the prior ten years, preferably with a decline of more than 40% and overall poor multi-year stock market performance

Bull Market Stew

Bull Market Stew

Ingredients2. Historically depressed stock

prices, especially among the traditionally most admired companies

Bull Market Stew

BRK.ABerkshire Hathaway

MRKMerck

DISDisney

Avg Price in 1982 667.5 Avg Price $2.24 Avg Price $1.22Dividends $0.08 Divdends $0.03Div Yield 3.48% Div Yield 2.06%

Ingredients (continued)

3. Massive negative psychology among individual and professional investors

Bull Market Stew

Bull Market Stew

AAII Index – March 5th, 2009

Bullish 18.9%

Bearish 70.3

Neutral 10.8

Source(s): Barron’s & Bespoke Investment Group

Ingredients (continued)4. Normally successful and

admired money managers called out on the carpet and in some ways humiliated (preferably on the front page of the Wall Street Journal)

Bull Market Stew

Bull Market Stew

“A Recent Filing With Securities and Exchange Commission says the trustees of DWS Dreman High Return Equity (KDHRX) voted last June to remove the fund's manager after a 20-year run.”“The manager, 72-year-old David Dreman of Dreman Value Management, led the fund to a 47% loss in the past year, admittedly a bad year for all, placing it in the bottom 3% of its peers, according Bloomberg data.”

“In a surprise move, First Pacific Advisors said that its well-known chief executive, Robert Rodriguez, will leave for a one-year sabbatical starting in January.”“Mr. Rodriguez has been frustrated with the world of professional investing in the past year. He correctly predicted the credit crunch and subsequent economic downturn but has struggled to deliver strong stock returns.”

Source(s): WSJ.com

Ingredients (continued)5. Buy and hold investing viewed

as an idea that is no longer useful

Bull Market Stew

Bull Market Stew

Source(s): Businessweek.com

Jim CramerCNBC Host

Ingredients (continued)6. Seemingly unsolvable economic

problems as part of a deep recession

Bull Market Stew

“The 40 years ending in 1941 included the stock market panic of 1907, which drove down the Dow Jones Industrial Average nearly 38 percent; the World War I Era, where the period between 1910 and 1919 was one of the worst ever for stocks; AND, oh yes, the Great Depression. Finally, icing on the 40-year cake, the Japanese bombed Pearl Harbor on December 7, 1941.”

Bull Market Stew

Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management

Ingredients (continued)7. Accommodative Federal

Reserve Monetary Polices and stimulative fiscal policies from the U.S. Government

Bull Market Stew

Source(s): frbatlanta.org

Bull Market Stew

Ingredients (continued)8. Public short selling has hit

record levels

Bull Market Stew

Value Line – December 26, 2008% of total NYSE short sales by:

Wk. ending Wk. Ending12/17 12/10

Public: 72 74NYSE Spedialists: 7 6Other NYSE Members: 21 20

Bull Market Stew

Ingredients (continued)9. Cash in Money Market Funds at

record levels in relation to stock market capitalization and paying low interest rates

Bull Market Stew

Bull Market Stew

Source(s): Hays Advisory

Bull Market Stew

Source(s): Hays Advisory

Ingredients (continued)10. Very intelligent and credible

economists and analysts explaining clearly and logically how terrible things are going to be for many years.

Bull Market Stew

Bull Market Stew

Nouriel RoubiniProfessor at NYU

Source(s): The Wall Street Examiner

Bull Market Stew

Nouriel RoubiniProfessor at NYU

Source(s): Badische Zeitung

Bull Market Stew

DJIA S&P 500 IndexAverage over 1982 960.8 Average over 1982 131.6

Today’s DJIA Level 8409.85 Today’s Index Level 907.39

Appreciation 8.75x Appreciation 6.90x

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