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Taking stock of history in gauging this bear market

The St. Petersburg Times asked three area stock market prognosticators to draw from the past in gauging where this bear market is headed.

TOM O'BRIEN, local radio show host and author
"Every news channel in the world is saying we're going to hell in a handbasket, and that's not how it works."

When will we know we've hit bottom?
We may have just bottomed out. He gauges the turn on trading volume, when selling starts to dry up based on gradually fewer shares sold during a downturn. That's been happening, he says. The heavy buyers are starting to emerge.

What does recovery look like?
"Slow, meticulous, month by month, things will start getting a little bit better." Investors will be slow to believe recovery is real the first 60 to 90 days. But a slow recovery is better, forcing companies to make smart choices as they rebuild their work force.

How will recovery compare?
In terms of jobs losses and fear, this is more like the '73-'74 recession. But in terms of a market recovery, this mirrors '81-'82 , with the gradual revival of housing in 1983 and a big uptick in jobs keeping the market recovery going.

RODNEY JOHNSON, president, H.S. Dent in Tampa
"The FDIC saved us last fall; there's no question about that. It's the reason you and I aren't bartering for wheat now."

When will we know we've hit bottom?
A short-term bottom fueled by a stimulus is illusionary. After peaking from 8,800 to 9,600 this year, look for the Dow to fall as low as 3,800. No solid recovery until companies start posting increased profits. The infrastructure spurring easy credit is gone for good.

What does recovery look like?
"A very long trough" followed by a gradual, U-shaped recovery. Investors may be trapped in a wide, declining trading range for a couple of years. The market recovery is tied to earnings recovery, and that won't happen until the labor force increases.

How will recovery compare?
It will be "more like the Great Depression" in that recovery will take a long period of time. But the damage is not as great. In terms of the severity to investors, parallels are closer to coming out of the recession in '74-'75.

TIMOTHY McINTOSH, founder, Strategic Investment Partners in Tampa
"If we still see a large swing in stock prices, that will tell me we're not done searching for a bottom."

When will we know we've hit bottom?
Maybe last week, but to confirm that, look for a couple of signs. One, the Dow getting back above 8,000. Two, earnings estimates need to either start heading up or at least flat-lining instead of declining. Look for the energy sector to be one of the leaders on the way up.

What does recovery look like?
"Volatility will slowly mitigate over the course of the year." The Dow may fluctuate in the 6,500 to 8,500 range for six months and then start to break out after that. But don't look for the return of Dow 12,000 any time soon.

How will recovery compare?
The strongest parallels are to '73-'74, even though inflation was a root cause of that bear market. 1975 was a strong year for the Dow, up over 30 percent. That kind of boost isn't likely this year, but maybe in 2010.

Taking stock of history in gauging this bear market 03/14/09 [Last modified: Sunday, March 15, 2009 4:27pm]
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