The Bear Is Here

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ride a bearOr so says researchers from the Leuthold Weeden Institutional Research's "Green Book." Doug Ramsey, a senior researcher, concludes: "[The Stock Market Is] WORSE THAN IT LOOKS… AND NOT OVER." He also says the Dow and the S&P are not good indicators of a coming bear market.

Ramsey writes in the October Perception for Professional (subscription required), also known as the "Green Book" for the color of its cover:

"In the past two months, the bear market has doled out just enough hopeful tidbits that many investors do not fully grasp (nor have prepared themselves for) the scope of the losses in global stocks. Yes, the Dow and the S&P 500 held above their early August lows throughout an ugly September. But so what? These indexes (especially the Dow) just might be the worst ones available for tracking both the prelude to and the actual path

of a bear market.

"Why? High quality U.S. blue chips are the last to peak in a global bull market. And after the bear gets underway, they tend to outperform other market segments throughout the first two-thirds (or more) of a bear market. When the Dow’s loss finally exceeds 20%

and USA Today trumpets the bear’s arrival, most everything else is already down 25-35%, and it is usually time to be drawing up buy lists (...with 2008 a painful

exception).

"The Dow and S&P 500 held above the 'official' (but not very useful) 20% definition of a bear market last month, and had many optimists praising the market’s ability to absorb bad news relating to (pick your poison): European debt, disgraceful bickering in

Washington, and our own decelerating economy. But the 'absorption' process did not proceed quite as well elsewhere, as shown by the 'Rest Of World' stock market gauge" --- the MSCI All World Index Ex-US, which is down 12%.

"I still expect the S&P 500 to 'lose a digit' before it’s all over, with an ideal final low of about 975."

Full disclosure: I have been a long-time fan of Leuthold's quantitative methodology and in fact own shares of the Leuthold Core Investment fund in my retirement account. LCORX has a very strong long-term track record; it is down 2.6% over the trailing 12 months, ended 9/30. That compares to a 1% gain by iShares S&P 500 index ETF (IVV).

Oh, and Leuthold analysts have allowed us to run some of their research from time to time.

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