Thursday, October 8, 2009

Out of the Woods

Time to return to a picture that we have looked at a few times this year. The first was back in March, when we started this blog. The graph in question was part of a larger presentation we titled "Where Do We Go From Here", in which we discussed what the future may hold for the economy and our investments. This was done just after the markets reached their year lows of March 9th.

We revisited the graph again in May. At the end of that post I said this:

"So we are now two months out from the lows reached in early March, and the picture is getting a bit clearer. It looks like we may have avoided the Great Depression II, now we have to see how long recovery will take and how robust it will be."

And here it is, the newest update of the aforementioned graph (click on graph for larger image):

As a refresher, the graph shows what happened to US stocks during the three worst bear markets of the past century, The Great Depression (green line), the 1973-1974 Bear Market (blue line) and the present (red line). We have represented the US stock market as the Dimensional Adjusted Market 2 Index, which is a broader index than something like the S&P 500. The 32 month period represents how long it took for the market to reach bottom during the Depression.

What we see is that after 23 months, the current market is well ahead of both previous bear markets, having risen 59% since the lows at the end of February. Not too shabby.

We have even begun to hear economists claim that the recession is technically over, and this includes skeptics like Paul Krugman. However, there also seems to be consensus that the recovery will take a while to get moving strongly, and unemployment may continue to worsen before it improves.

While I agree that there certainly are challenges ahead, I am glad that sticking to our principle of riding out the difficult times has paid off for our clients during this year.