Weekly Risk Report 01/19/2009
For yet another week we have the i-Wave showing a very low level of risk in the general market place as compared to history running back to 1982. Relative Valuation remains very low, Speculation is low and bullish, too. There is no "divergent opinion" right now. Market participants are all still betting the markets are weak. Finally, there's a net loss of issued being traded on a regular basis on the NYSE and the NASDAQ Exchanges. So, we have all four components bullish again this week.
It takes a rather remarkable bit of circumstance to drive all components below their 10th percentile. Certainly we all can attest to just how remarkable 2008 was. Yet with all the damage to net worth during the year, the markets are offering better value than at essentially any time since January of 1982 - the beginning of the long running bullish period that lasted nearly two full decades.
While I don't have data for the 1969 to 1974 bear market, when it was over, it offered value that has been considered by many to be a "once in a lifetime" opportunity. In 1974 the average Price/Earnings ratio was amazingly low and interest rates were quite moderate. The incomplete data that I do have for that era indicates this current market to be not as great a value, but not too far off. So, while not a "once in a lifetime" event, it certainly measures to be a reasonable chance to do some good as investors.
When we filter out most of the background noise, we find that the economy is damaged, but not dead. Different business sectors will recover at different rates. This is why we advocate highly diversified investment platforms. Each cork will rise at its own rate as the recovery gets under way. Along with any market recovery, we should be able to start the process of rebuilding our reserves along with that part of the cycle.
