Length of Bear Markets Since 1920s

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Bear markets are painful for equity investors but generally tend to occur every few years or so. Bull markets are always followed by bear markets and vice versa. From the dot-com crash to the recent global financial crisis, bear markets are not an aberration but are part of feature of equity markets. Though investors hate getting mauled by the bear, the good news is that bear market duration are shorter than most people think. So investors that hand on to their holdings during these market conditions perform well in the long run.

According to an article by Mark Hulbert in today’s journal, it takes am average of 3.1 years after a bear market starts for stocks to recover fully.

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Length of Bear Markets

Source: Bear Markets Can Be Shorter Than You Think, WSJ, Mar 8, 2016

A few takeaways:

  • Investors should not panic and sell their holdings during bear markets.
  • Long-term investors can grab stocks on the cheap when their blood on the streets.
  • When bears attack the markets, high quality stocks tend to get thrown out along with losers. So investors with cash to deploy have plenty of pickings to choose from.
  • Automatic dividend reinvestment becomes a returns amplifier during bear markets as additional shares are added to a portfolio at lower prices.
  • Extreme bearishness in the markets when everyone throws in the towel and pundits and retail investors alike fee the world is about to end is usually the best time to buy stocks. Early 2009 is one such example.

Update:

Average Length of Time for S&P 500 Recovery:

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SP 500 Recovery Period

Source: Market Volatility: What If You Don’t Have Time to Recover?, Schwab, Mar 9, 2016

Also checkout: Total Returns During US Equity Secular Bull and Bear Markets Since 1877, TFS, June 18, 2017

India’s Oil Consumption In Three Charts

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India is one of the largest consumers of crude oil in the world. As a net importer of oil, India’s annual oil bill is huge. But according to a research report by The Oxford Institute of Energy Studies, India’s oil demand is rising and is “on the verge of take-off”. In addition, due to plunge in global oil prices India’s oil import bill is also projected to be lower.

1) The World’s Top Oil Consumers:

In 2015, India become the main driver of non-OECD oil demand growth with year-over-year growth rising by 0.3 million barrels/day. a record. Though currently Japan is the 2nd largest consumer of oil after China, India is poised to overtake Japan.

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 Top Oil Consuming Countries

2) India’s historical oil consumption by year:

Crude oil consumption has been consistently rising for India as the chart below shows. In the past decade, oil demand growth has been around 0.15 mb/day.Higher economic growth this year together with lower oil prices should lead to more oil consumption.

India Historical Oil Consumption by Year

3) Per capita oil consumption in India is still low relative to other countries:

Per Capita Oil Consumption Select Countries

India’s oil consumption is very low on a per capita basis when compared to the US.

Source: India’s Oil Demand: On the Verge of ‘Take-Off’? by Amrita Sen & Anupama Sen, The Oxford Institute of Energy Studies, University of Oxford

7 US Large-Cap Stocks and Their Foreign Equivalents

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Holding international stocks is an important part of any portfolio diversification. In today’s globalized economy, putting all the eggs in one basket does not make sense. For US investors, going abroad not only may provide diversification benefits but also amplify returns.

One of the strategies for achieving diversification is to substitute large-cap US companies with their foreign peers or own the foreign peers in addition to the American equivalent depending on an investor’s situation and goal.

To that end, the following are seven large-cap US stocks from different industries and their international equivalents:

1.Banking:

US Company: Wells Fargo & Company (WFC)

Potential Foreign Substitute:Royal Bank of Canada (RY)

2.Household Goods:

US Company:Procter & Gamble Co (PG)

Potential Foreign Substitute: Henkel AG & Co KGaA (HENKY)

3.Utilities:

US Company:Southern Co. (SO)

Potential Foreign Substitute:National Grid PLC (NGG)

4.Pharma:

US Company:Pfizer Inc (PFE)

Potential Foreign Substitute:Novo Nordisk A/S (NVO)

5.Telecom:

US Company: AT&T, Inc. (T)

Potential Foreign Substitute:Telenor ASA (TELNY)

6.Oil:

US Company: Exxon Mobil Corp (XOM)

Potential Foreign Substitute: Royal Dutch Shell PLC (RDS.A)

7.Sportswear:

US Company: NIKE, Inc. (NKE)

Potential Foreign Substitute:adidas AG (ADDYY)

Disclosure: Long RY

Study: Social Security Is The Most Important Source Of Income For Senior Citizens

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In the U.S. the Social Security program run by the Federal Government is one of the most successful programs in helping seniors in retirement. As a state run program it provides a safe, consistent and dependable benefit to seniors when they need it most. Private retirement plans such as the 401-Ks that are a failure for most American workers. Years ago I read a great book titled “The Great 401 (k) Hoax: Why Your Family’s Financial Security Is At Risk, And What You Can Do About It” that was very informative. That aptly book discussed in details the various flaws with this retirement plan that is now THE plan for saving for retirement for most workers.

A new research study published by the Economic Policy Institute shows that Social Security is the most important source of income for seniors when compared with all other sources of income. From the report:

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Social Security Important Income SOurce

 

Social Security is the most evenly distributed source of retirement income, with 82 percent of people age 65 and older receiving benefits. Among senior beneficiaries, the median benefit is $14,400. Though 61 percent of seniors receive interest or other asset income—the next most common source of income—amounts are too small to matter much for most seniors. Earned income is a major source of income, but only for the 22 percent of seniors with earnings. Public and private pensions are a much more important source of income than distributions from retirement accounts.

Source: The State of American Retirement – How 401(k)s have failed most American workers by Monique Morrissey, EPI

So anyone that bashes the Social Security system needs their heads examined……

The Collapse in Oil Prices is Not an Unprecedented Event

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Oil prices have fallen heavily since 2014. Prices reached more than $125 per barrel just a few years ago. On Friday Brent crude futures closed at $38.72/bbl.

For a few years it seemed oil prices would hold forever at around $100/bbl. Oil producers, refiners and others enjoyed a great earnings period as US consumers were hit with paying over $3.00 per gallon of gasoline and phrases like “pain at the pump” became a standard headline news title by the media. From June 2014, oil prices started to fall dramatically leading to plunge of more than 50%. Nowadays some experts are projecting oil prices to reach as low as $10/bbl or below. According to an article by the IMF, though the collapse in oil prices may seem like an unprecedented event, actually there were three major oil price declines in the past.

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Past Oil price Collapses


The table below shows the similarities and differences of oil price collapses:

Past Oil price Collapses-Similarities and Differences

Source: Finance & Development Magazine, IMF, December 2015

Here are a few points to remember about oil:

  • Oil is one of the most widely traded commodities. Since all commodities are volatile and unpredictable, oil is no different. In fact, oil is more than other commodities due to many factors including speculation, OPEC, shale oil, supply and demand, etc.
  • Oil prices can increase or decrease for a multitude of reasons. So equity investors should not change their investment decisions based on oil prices alone. For instance, two guys with firecrackers can punch a hole in some pipeline in Nigeria and cause global prices to go down. Similarly the OPEC cartel can restrict production to raise prices. Nobody in the world knows exactly where oil prices go next.
  • While low oil prices adversely affect the stocks of companies in the oil industry it does not mean all other industries will also be impacted. There are winners and losers of low oil prices. Hence investors should not panic and instead should focus on picking up cheap stocks from sectors that are bound to benefit from low prices.

Related: Which Sectors are Winners and Which are Losers from Lower Oil Prices ?, TFS

Related ETN:

  • iPath S&P GSCI Crude Oil TR ETN (OIL)

Disclosure: No Positions