With US stocks closing higher for the third straight day on Monday (just one week after the huge debt downgrade sell off), they were up 10% off their overnight lows on August 9th. While this may cause some to get excited that stocks are coming back – we’re not so sure after looking at a chart shared by Barry Ritholtz on Monday.
We talked about this back in April of 2009, asking What if this bear market mirrors Japan’s 20 year sell off?, but it bears repeating…
Ritholtz shared this chart and some commentary from Bloomberg, where hedge fund TTN pointed out that they believe the U.S. may be gearing up for a recession similar to the one that kept Japan in the doldrums for over a decade (and, arguably, is still felt). Ritholtz pointed out that the monetary policies in Japan and the U.S. have differed, with the U.S. government intervening to increase liquidity while the Japanese did nothing, but this tweet from Josh Brown pretty much sums up the sentiments we’re seeing:
No one seems confident in this “bounce,” with even Ritholtz arguing we’ve still got a way to go on the downside, and sure enough we’re taking a hit today to the tune of 100 points or so down on the Dow.
So can this happen here? Can we spend 30 years in the stock market with no return to show for it? Unfortunately it has happened in the US before, during the Great Depression this current financial crisis keeps getting compared to. It took 25 years between 1926 and 1954 for the stock market to get back to new highs.
But the better question than can or will such a drawn out bear market happen to US markets (or any others for that matter) is the question of whether you are willing to bet your financial well being, your future on the stock market not following in Japan’s footsteps?
Whether the US market keeps moving higher to new 2011 highs, or whether we head back down to 6,000 or 5,000 in the Dow is anyone’s guess. But with our national debt rivaling Japan’s when they entered their lost decade(s), it clearly isn’t wise to have all of your money (or even a majority of it) in stocks.