This article was written by Atul Surana. He is a Certified Financial Planner.
What causes bull and bear markets? They are partly a result of the supply and demand for securities. Investor psychology, government involvement in the economy and changes in economic activity also drive the market up or down. These forces combine to make investors bid higher or lower prices for stocks.
To qualify as a bull or bear market, a market must have been moving in its current direction (by about 20% of its value) for a sustained period. Small, short-term movements lasting days do not qualify; they may only indicate corrections or short-lived movements. Bull and bear markets signify long movements of significant proportion.
There are several well-known bulls and bears in American history. The longest-lived bull market in U.S. history is the one that began about 1991 and is still climbing. Other major bulls occurred in the 1920’s, the late 1960’s and the mid-1980’s. However, they all ended in recessions or market crashes.
The best-known bear market in the U.S. was, of course, the Great Depression. The Dow Jones Industrial Average lost roughly 90 percent of its value during the first three years of this period. There were also numerous others throughout the twentieth century, including those of 1973-74 and 1981-82.
PREDICTING BULL AND BEAR MARKETS
Investors turn to theories and complex calculations to try to figure out in advance when the market will scream upward or tumble downward. In reality, however, no perfect indicator has been found.
In their attempts to predict the market, economists use technical analysis. Technical analysis is the use of market data to analyze individual stocks and the market as a whole. It is based on the ideas that supply and demand determine stock prices and that prices, in turn, also reflect the moods of investors. One tool commonly used in technical analysis is the advance-decline line, which measures the difference between the number of stocks advancing in price and the number declining in price. Each day a net advance is determined by subtracting total declines from total advances. This total, when taken over time, comprises the advance-decline line, which analysts use to forecast market trends.
Generally, the A/D line moves up or down with the Dow. However, economists have noted that when the line declines while the Dow is moving upward, it indicates that the market is probably going to change direction and decline as well.
This article was written for Drishtikone by Atul Surana who is a Certified Financial Planner.
According to the Asian Development Bank (ADB), the developing economies in Asia will not be immune to the global economic slowdown. At the same time, they will not be hostage to it. Citing rising commodity prices and food inflation as the prime hurdles, the bank has stated that the growth prospects of Asian economies are likely to depend much more on how successfully countries manage their internal risks and overcome domestic constraints to growth. While the ADB has reduced its 2008 GDP growth forecasts from 10.8% to 10.0% for China, the same has been pegged at 8.0% for India from 8.5% earlier. Attempts by the government bodies to dismiss fears of a slowdown in growth have been quelled by some of the key factors that have made the earlier growth projections unfeasible.
Moderated consumption growth: The firm lending rates have resulted in a sharp reduction in consumption growth that was expected to lever India’s growth on the back of its demographic dividend (growing young population). Leveraged spending by households has already declined sharply, as reflected in two-wheeler and auto sales, consumer durables production and mortgage lending growth. Consumer goods production growth has decelerated sharply to 4.3% during the three months ended January 2008 from the peak of 18.5% in June 2005 (Source: CMIE). Two-wheeler sales have been declining year on year for the past 11 months. Growth in fresh mortgage disbursements has remained low at single-digit levels for the last few quarters.
Lower exports: Besides the moderation in consumption growth, the export sector has also suffered a meltdown because of weakening demand in the developed world and appreciation in the rupee. Export growth in rupee terms has weakened to an average of 7.9% over the past six months compared with 23.3% during the 12-months ended March 2007. A leading indicator of exports to the US (US ISM New Orders Index) predicts a further slowdown for India’s exports over the next six months.
Deferred corporate investments: The extended duration of weak consumption growth patterns has also weakened business sentiments. The sharp slowdown in demand for goods has started weighing on the corporate sector’s confidence in capacity utilisation. The risk of poor takeoffs and underutilisation of new capacities that would hurt corporate profitability is leading to corporates deferring their investment plans.
Here is an very interesting commentary on non-money and unstructured finance side o fthe economies, specifically the contemporary economic events in the US and India. Please share your thoughts in the comments section below.
by Mr. Francis Lobo
Mr. Francis Leonard Lobo is a Mechanical Engineer from the University of Poona. His education has been in prestigious institutions in Poona like St. Vincents High School, Ferguson College & College of Engineering. He is also a Life Fellow of Indian Institution of Industrial Engineering & a Member of All India Management Association. He has over 50 years of industry & business experience as a planning engineer, company executive, in-company counselor, company director, mentor, consultant, trainer, & CEO. He has written several books like “Getting Things Done — Strategies for Success”; “Strategies & Techniques for Successful Selling — The Sales Mission” etc.
We are in a MONEY CENTRIC ECONOMY — Everything is measured or attempted to be measured & assessed in money terms. The poor & the weak, even though they have the numbers & the law on their side, are helpless against exploitation & the greed & the self-interests of the rich & the powerful. This is resulting in growing disparities between the rich & the poor. Millions are being cheated out of education & higher education & affordable health care on the plea that these should be privatized & be run like corporations on commercial lines for profit.
In 2008 the economy faces the following challenges & opportunities, most of which require us to look at the non-money, unstructured finance space:
– The rising value of the rupee
– How to utilize the wealth generated by the in-flow of foreign capital into the share market
– The globalization of the retail trade & the threats to the livelihood of millions
– The energy crisis
– Global warming & climate change
– The uncertainties & threats posed by terrorism
– The challenges to rational thinking & the emergence of the power of religious fundamentalism
– The deficiencies in the present form of governance. — The dependence on the discretionary powers of the bureaucracy. The centralization of power in the hierarchical structure be it in the family, in business or the government. The first-past-the-post system of elections, with all its aberrations, where the swing votes of even small groups can determine who is elected. The slow judicial process resulting in a growing backlog of tens of millions of cases.
– The myth of an Ownership Society, where ownership of assets like houses, is based on borrowed money & these assets have to be surrendered or foreclosed if the interest & principal cannot be repaid. This is resulting in Tent People in USA similar to the slum dwellers in India, driven out of their homes & having to live in temporary structures under bridges or in open spaces
– The shortage & the rising price of food as land & water required for food production are being diverted to other applications.
– Overhanging all this is the possibility of an Economic Recession in USA, with its impact on the Global economy.
Here is another guest article for Drishtikone. John Hammergren is CEO of McKesson Corporation, the Fortune 18 health care services leader. McKesson serves customers at every point of health care and is helping transform the industry into a modern, efficient, and quality-driven system. McKesson has seen industry-leading performance under Hammergren’s leadership. During his tenure, the company has more than doubled its revenues and experienced a cultural and business renewal. Hammergren is an HP board member and the recipient of numerous awards for leadership. He is the author of Skin in the Game: How Putting Yourself First Today Will Revolutionize Health Care Tomorrow.
by John Hammergren
It would be easy, in this long run of important presidential primaries, to be convinced that the problems we have with our health care system can only be resolved through government action and the political process. After all, presidential candidates Hillary Clinton, Barack Obama, and John McCain have each made health care reform a central issue of their campaigns. Political races are all about emphasizing stark differences between positions. But I am encouraged by how much today’s political leaders recognize that our health care crisis – despite that word “care” – is fundamentally a business problem.
California Governor Arnold Schwarzenegger is one of those politicians who understands the urgency for reform. The health care company I lead, McKesson Corporation, turned 175 years old this year. To help us celebrate that proud milestone, Governor Schwarzenegger spoke passionately and convincingly about the opportunities we have before us to bring the health care industry to another level of excellence.
I believe he’s right. Historically, every twenty years or so, we have a debate in this country about health care reform. So what’s different now? We’ve enjoyed incredible advances in medical practice and technology over the last few decades. That’s one reason why overall costs have risen but it’s also why American health care, despite the criticism currently in vogue, is the envy of the world. On the other hand, with the best of intentions, the political solutions traditionally put forward to make health care cheaper and more accessible – like artificially capping costs, regulating the services providers offer and restricting consumer choice – have had the opposite effect. Nobody who runs a business is surprised about that. What computer maker or car dealer would worry about price, access or quality if there was no competition for the customer and no reward for distinctive service?
Business leaders across the country are keenly aware of these issues. I am a member of the Coalition to Advance Healthcare Reform, a group of more than 50 companies advocating solutions to the health care crisis. In regular conversations with top executives, I hear the same concerns frequently. First, because health care costs are soaring, our employer-based health insurance system is hurting American businesses and the economy. Every product or service an American company offers is more expensive than it should be because employee health care costs are added to the mix. In a global economy, this is making it harder to compete with companies abroad. Second, business leaders, with their background in competitive markets and customer service, look at our health care system and think, “What other industry could operate like this and survive?”
One of my friends, let’s call him "V", had written this analysis in an email to me in reaction to my question to my friends on the danger to the US economy. I thought he had done a good analysis and wanted to share with every one else. Read this thought-provoking piece and share your thoughts on his evaluation.
The US economy is currently at risk. However, this risk is offset by the fact that the US economy has tremendous underlying resilience due to technology capability and permeation (on strength of US-based companies), world-leading intellectual and other property laws that attracts producers (not just workers) from the world over, control of Saudi Arabia and the middle-eastern OPEC world (Oil is still an unbelievably-great make-or-break lever in the world economy.).
The US is also helped by
- huge oil reserves
- a military that can seize limited resources anywhere in the world, disregarding all legitimacy.
- very high education rate and constant talent rejuvenation via immigration
Low education rate in the general population actually serve as growth-retardants in the Asian countries (in-part because they perpetuate corruption). High education rates do the opposite as evident in Ireland.
- minimal internal conflicts compared to Asian contenders
One of my close friends – Vish – has written this based on an earlier post on drishtikone. I think it is very informative and analyzes our poverty in context of our age old wisdom in the Vedas.
(Review written by Kenneth Davis)
- BusinessChinaSpecial Stories
This article for Drishtikone by Peter Navarro, the author of "The Coming China Wars" gives a flavor of the detailed analysis of the effect of China on the world at large in the coming decades in his book. I strongly recommend the book to read about each "War" in detail!
The story is far larger than any one of us or any single country.
The pandemonium was triggered by a Chinese government announcement that it would no longer finance the mounting budget and trade deficits of a “profligate United States” that “refuses to live within its means” and that “insists on scapegoating China for its own internal economic problems.” Nor would China continue to try to prop up “an increasingly worthless dollar.”
As the Chinese began dumping U.S. assets on Wall Street, both stock and bond prices plummeted. The panic soon spread to other exchanges around the world as gold soared to more than $1,000 an ounce and fear of a global depression deepened.
China’s actions have been widely interpreted as harsh retaliation for U.S. congressional passage of stiff protectionist tariffs on a wide range of manufactured goods. With the presidential election less than a month away, both houses of Congress up for electoral grabs, and the U.S. economy stuck in reverse, Republicans and Democrats alike are pushing additional legislation addressing everything from the growing trade in Chinese counterfeit goods, illegal drugs, and ballistic missiles to the international spillover from China’s mounting environmental pollution.