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When we last wrote about bear markets in October 2001 (Contrary view no. 30) there was a minor countertrend rally in progress, which was followed by another downward drive that lasted until October 2002.
We believe the major countertrend rally from the October 2002 lows is now drawing to a close. It will be followed by a new major downward drive that will take both the FTSE 100 and the Dow Jones Industrial Average down to new bear market lows.
A bear market rally usually takes less time than the preceding downward drive, and retraces one third to two thirds of the previous lost ground. This bear market rally has satisfied the retracement criteria in both London and New York. There is a global recession building, which has not yet been recognised in markets. This coming global recession cannot be fixed by credit creation, because people simply cannot afford to service any more debt. Markets have yet to start recognising such fundamentals.
Only when people believe they should never invest in equities, will the bear market end.
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© Kauders Portfolio Management 2004