BOB BRINKER'S MARKETIMER:
I think you will find this fascinating if I did a good enough job of explaining it.
Brinker called the low on March 11th, 2003. It technically was lower 5 months earlier on October 9, 2002, but March 11th was a huge low. Ever since he called it, the market has done nothing but go up. He is ranked as the top market timer by Hulbert Financial Digest for several periods of time. HFD is an objective 3rd party evaluator of all the well-known prognosticators.
Anyway, this summary is taken from his March 4th, 2005 newsletter. He puts out a newsletter once a month.
His opinion is that, beginning in early 2000, the markets began a long-term bear market that will last 8-20 years. He equates this bear market with 1929-1949 and 1966-1982. These bear markets are called SECULAR bear markets.
Within SECULAR bear markets are mini bull markets called CYCLICAL bull markets. During the 1966-1982 secular bear market, there were four (4) of these cyclical bull markets. Without going into detail, they averaged between 21-38 months long and the returns were between +32% and +76%. He argues that these are excellent trading opportunities withing a long-term SECULAR bear market and that we are in one now and that it will be ending before long.
He gives no reason to believe that the present cyclical bull market we are in right now - similar to the 4 that happened between 1966-1982 - will be any different in terms of length or performance than any of those.
If you begin this cyclical bull market on March 11, 2003, then it is 24 months long. If you begin it on October 9, 2002, then it is 29 months long. The average length of time for the 4 cyclical bull markets during the last secular bear market were 29.3 months. So, we are right on top of that.
Also, the gains during this cyclical bull market are +45% to +49% depending on whether you use 10-9-02 or 3-11-03 as the starting point. The average for the 4 previous cyclical bull markets during the last secular bear market was +53.2%.
SO... if we take the average of the two dates (3/03 and 10/02) and the average of the two returns, we have an EXISTING cyclical bull market that is 26.5 months and +47% returns. Both numbers are only slightly below the average for the other 4 cyclical bull markets of 29.3 months and +53.2%.
My point is that the existing cyclical bull market is long in the tooth. He points out that the easy money was made up until January of 2005 and that it will be tough going from here until the cyclical bull market expires - which, of course, will be horrible. He also argues that you want to have cash to capitalize on the next one when it comes.
I should point out that the periods of time before, after and BETWEEN these cyclical bull markets is only 16 months. Therefore, when it ends sometime in the next 1-5 months (in all likelihood), it will be in the neighborhood of 16 months before the next one begins. These periods between the cyclical bull markets are EXTREMELY bad. They are shorter in duration than the cyclical bull markets, but the losses are worse than the gains during the cyclical bull markets.
My recommendation is to phase out (or continue to phase out) of stocks to at least 50% cash (or in my case, probably 70-75% cash) over the next few months - if not sooner.
Len
Warren Buffet: 5 minutes and 17 seconds of pure, unadulterated, bulletproof, flawless logic.
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