---------------------- Forwarded by Scott Neal/HOU/ECT on 04/04/2001 10:14 AM 
---------------------------


"scott neal" <sneal12@mindspring.com> on 04/04/2001 12:12:18 AM
To: <Scott.Neal@enron.com>
cc:  
Subject: bear markets





Unnatural  History


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If you think  the market can't get much worse, history says you're  wrong.
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OpenFund  Commentary 
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Indices analyzed in this post:  

Dow  Jones Industrials
NASDAQ  Composite
NASDAQ  100
NASDAQ  Volatility
GSTI  Multimedia Networking
GSTI  Semiconductor
GSTI  Software
AMEX  Biotechnology
Russell  2000
Wilshire  TMV
Light  Crude Oil
Gold
30yr  Treasury Bonds 
Fed  Funds Futures
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Live audio of this commentary: [IMAGE]
Live video from our morning call: [IMAGE]


After the last two horrible quarters, many of  us are probably telling 
ourselves that it can't get much worse than it's been.  For those of us who 
believe that as an unquestioned article of faith, let me  give you a little 
history lesson. You'll see that it can get a lot worse  than this.

For our little history lesson we'll focus on the S&P 500, because that  
pretty much represents the entire US equity market. Obviously the NASDAQ has 
had  it a lot worse -- but that's only a subset of the total market, and it's 
fairly  concentrated in a single broad sector: technology. In subsequent 
commentaries  the NASDAQ will get its turn in the historical spotlight.

Over the last two quarters  the S&P 500 lost 19.23%. As horrific as that has 
been, that actually only  ranks 78th out of the 2409 six-month periods since 
1800. Believe it or not,  there have been 77 that were worse.

There were eight six-month  periods in which the S&P 500 lost more than 40%. 
There were 18 in which it  lost more than 30%. The very worst single 
six-month period was the one ending  May, 1932, in which the S&P 500 lost an 
astonishing 52.92%.

Of the 77 six-month periods  worse than the most recent one, 21 were before 
1900, and none of them were  during the Civil War. 33 (including the very 
worst 4) were in the 1930s, in the  Great Depression that followed in the 
wake of the stock market crash of 1929.  

The worst six-month period  in the modern era ranks 13th overall. It was the 
one ended September, 1974, with  the S&P down 32.39%. 4 others were in the 
1970s. 

The most recent period worse  than the last six months ranks 73rd. It was the 
one ended March, 1988, with the  S&P down 19.56%. That means that in the 
1990s there were no six-month  periods worse than the most recent six-month 
period. 

This shows that what we've experienced over the last six months is by no  
means as bad as it could have been, or could still be. But at the same time 
it  shows that market performance this bad is extremely rare. The S&P 500 
has  done this badly (or worse) only 3.2% of the time over a span of 200 
years. But  don't let any of that make you think it can't get worse. 

It can. Of the 77 six-month periods worse than the most recent, the S&P  went 
down further during the next six months 24 times -- losing an  average of an 
additional 18.24%. 

Okay, so the bad news is that, based on history, we've got about a 1/3 
chance  of things still getting worse over the next six months. But of course 
the good  news is that we've got, on the same basis, a 2/3 chance of things 
getting  better. 

But not that much better. Over the 53 times the S&P rose over the  next six 
months, it only rose an average of 18.38%. Even if that happens now  over the 
coming six months, that's not going to make up for the 19.23% loss of  the 
last six months. And don't forget about the bad magic of compounding losses.  
If you start with a dollar and you lose 19.23% of it, you've got 80.8 cents  
left. It that then rises by 18.38%, you're only back up to 95.6 cents. 

History class dismissed. Oh, and there will be a test tomorrow... (and every  
day). 

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