Market Commentary for the week of November 23, 2009

Perception vs. reality.
Despite what appears to be a successful 2009 rebound, we should bear in mind that the recovery bounce has come a long way, indeed, because it has come from such a low origin. Measured over a longer cycle, the basic first upleg in our recovery is nothing more than a significant price spike driven more by value-hunting than by a turnaround in previously corrupt fundamentals. In fact, the net effect to the market (including this year’s recovery) over the last 10 years is zero percent gain.

Secular bulls and bears take decades to unfold. The record is clear that 2009 might have rescued your 401-K, but did little either to establish or refute potentially negative consequences to a growth cycle predicated, at its later stages, upon greed, excess and over-indulgence.

It is upsetting to see a market slide by on complacency. But in reality, very few of my compatriots or clients are convinced enough that this recovery is for real to go “all-in” without discretion.

Those who proclaim these trading rallies as the “real deal” are premature in their conclusion.

History vs. today.
Comparing our present situation to others in the past is also misleading. There have, in fact, been comparable periods in the market’s past, but none identical. We can gain insight from similar market patterns, and we can quantify the probability of market cycle’s performance probabilities even if the patterns themselves are unique. What we cannot know, and current market activity bears this out, is when these cycles and probabilities might unfold.

We know the life span and magnitude of previous bull/bear markets. Referencing the past can be a handy resource but not always a correlative indicator. What we do know is that the depth of the market’s RSI decline before March 2009 gave every signal that the most statistically probable direction for the global market after that date was to go up.

But before we can declare a bull we must go through several important cyclical inflection points and a whole lot of psychological recommitment to owning risk of any kind.

What about tomorrow?
There is no question in my analysis that the next two decades hold the most significant statistical probability of upside performance than at any time since the 1980’s. But I would caution any client, any investor, that the configuration of that opportunity is also the most diverse and unique. The “likely” conclusions are not yet obvious, and may be punctuated by more pain and more mania.

If a turnaround in global markets/economies is to occur we must reconsider the effectiveness of the playing field, and whether or not the rules allow for fairness and opportunity for all participants.

Otherwise, there will be nothing to “give thanks” for, except that this year saved you from more serious declines than you had otherwise expected when the year began.