As an eager plethora of pundits start writing the postmortem on the Fed-induced Ponzi bull market, it is being said that it ended just as it began—in chaos and out of the blue.

That beginning was at the end of the dark winter of 2009. Specifically as to date and unceremoniously as to events, on March 9, 2009, the bear market abruptly ended. The S&P 500 closed at 677, and 10 days later it had spiked to 823, a gain of 21.6%. Less than two months later on May 6, it had risen still farther to 920, a gain of 35.9%.

For the next several months, the drumbeat of negative news was deafening. The unemployment rate continued its upward trajectory through 2009, cresting at 10% in early 2010. The 18-month Great Recession ended in June 2009, although we didn’t know officially until the Business Cycle Dating Committee’s announcement on April 12, 2010.[1]

Pervasive fear, it seemed, created a vacuum of opportunity for those who maintained their equanimity.

Eleven years later, after a seemingly endless stream of new highs, the S&P 500 inconspicuously peaked on February 19 at 3,386. The prevailing mood, if nothing else, was an absence of fear. Evidently, the storm clouds emerging on the horizon were not close enough to ignite selling in such volumes as to overwhelm the steady buyers, many of whom—including index funds, ETFs, and corporations buying back stock—were purchase-price agnostic. Even the reports of burgeoning coronavirus infections—worldwide and in the U.S. starting January 20—seemed to have little effect on either buyers or sellers. Nor did the plunging yields on U.S. Treasury securities, which had been boldly telegraphing impending recession, garner sufficient concern.

None of that mattered. Until it did. And then all hell broke loose. Simultaneously, in what seemed a perfect storm 2.0,[2] the squabble between the Russians and the Saudis turned into something ugly, ravaging the bellwether price of crude oil. Even for markets of unprecedented volatility, in the last month the price of WTI (West Texas Intermediate) crude performed an unthinkable cliff dive from $54 to $21. In the meantime, the Fed did what it does best. Panic. Since this emerging crisis began, the Fed’s radical reactionary moves have equaled or exceeded those during the Financial Crisis of 2008–09, but in a highly compressed timeframe. From the peak on February 19 to the most recent trough on March 18, the S&P lost 1,100 points, or 32.5% in less than a month.

While the illness and loss of life due to COVID-19 are of paramount concern, there’s also an undeniable economic and financial component to all this. Could it be that these seemingly ubiquitous threats and fears, both real and imagined, will provide opportunity for the imperturbable? Are the markets offering the enterprising a massively profitable chance to buy the dip on a V-shaped rebound? Before I address this question, please see the following excerpt from our 2018 Annual Report, pages 13–14. It begins by suggesting a departure from historical precedent, encouraging the reader to view the great “Crash,” which preceded the Great Depression, as two discrete episodes.

The first began with the Dow’s peak at 381.17 on September 3, 1929, from which point daily price volatility and trading volume convulsed into spasms of fear and relief. The freefall, which began as “The Crash” on October 24 (“Black Thursday”), ended three weeks later on November 13, during which time the Dow plummeted 198.60 points, an overall decline of 47.9%.  

During the seemingly eternal, somnolent five months between November 14, 1929, and April 17, 1930, the panic subsided and the Dow marched back to 294.07, recovering 48% of the ground lost during the crisis. President Herbert Hoover and Treasury Secretary Andrew Mellon, veterans of the 1920–21 depression, embarked on a whirlwind of intervention to “stop a depression before it could start.”[3] At the President’s insistence, every faction in business, industry and labor convened in Washington on November 21, 1929, agreeing under varying degrees of duress to strike a bargain to forestall depression: neither would companies cut wages, nor would unions seek increases. Stabilization, an idea that gathered steam among economic luminaries including Keynes during the mid-20s—not disorderly 1921-style wage and price deflation—was to be the order of the day. 

In May 1930, just as the relentless descent of the Dow resumed, the chastised Irving Fisher doubled down, declaring, “It seems manifest that thus far the difference between the present comparatively mild business recession and the severe depression of 1920–21 is like that between a thunder-shower and a tornado.” Thus the “Second Crash” originated (and thus the reason for so much of the narrative of the times appearing here in the 1930–49 era), this time investors suffering a death-by-a-thousand-cuts, as the Dow slipped into the black hole of ignominy, shredding all hope as it faded from 209.4 to 41, losing 81% of its value over the next 26 relentlessly excruciating months. 

While acknowledging the danger in choosing historical parallels to bolster a contemporary argument, I do so with that caveat front and center. Read on at your own peril or, perhaps, enlightenment; my personal level of conviction is moderately on the favorable side of 50/50.

So, I do envision the current panicky selloff as a source of short-term opportunity for those with the optionality of cash, as well as a chance for partial redemption for those fully committed to equities. I have no idea about the level to which the S&P 500 must sink before an inevitable rally begins. Though we monitor volatility closely, when spasms of alternating emotions are the principal arbiter of prices, estimating ultimate levels is a crude measurement akin to reading tea leaves. Besides, for a hedger like myself, it’s largely irrelevant. As we emphatically believe, “It’s better to be generally right than precisely wrong.”

For argument’s sake, let’s presume a rally would mirror the experience of 1929–30, regaining roughly 50% of the ground lost over a multi-month span. The danger to trader and investor alike is to fall victim to the advice that Irving Fisher gave in May 1930. Most investors are proportionally emotional, becoming bolder as the market rises and more fearful as it falls.

As made clear in our many communiqués, including these posts and most recently our 2018 Annual Report, we believe this bear market will end only when investors are like the nearly down-for-the-count prizefighter whose corner men are ready to throw in the towel. To add insult to injury, we worry that neither the economy nor the markets will make amends for inaction by conveniently taking the shape of a “V.”


[2] Frank Martin, A Decade of Delusions (Wiley, 2011), 272. See “The Perfect Storm,” Chapter 9.

[3] In further parallel with the two-phase drop from 1929, the government response to today’s crisis, both monetary and proposed fiscal, is every bit as reactionary as those attempted by the Hoover administration. The situation at present is complicated in that the government is responding to a financial, and impending economic, crisis as well as a humanitarian imperative. In the case of the former, the Fed is following a failed playbook. In the case of the latter, the Congress is doing what it can without one.

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