The last couple of months have been a “jolly good market, indeed”, as the Brits would say (Jack Schannep just returned from Europe). While there Schannep, who deals in spiders (SPY), Diamonds (DIA) and the iShares NYSE Composite Index (NYC), noticed talk of increasing interest rates which the U.S. market is just now reacting to. Schannep has mentioned www.businesscycle.com in the past as being a good source of economic information, and note they see a slowing German economy with rising inflation. Schannep found it interesting that the BBC (British Broadcasting Company) seldom highlighted the New York Stock Exchange but, quite naturally, focused on Europe. The fact is, the NYSE is the ‘big dog’ that usually wags their tail, not the other way around. The Shanghai market did not shake our market when it dropped 15% recently but such a drop here would almost certainly affect most others. Of course individual country’s markets do their ‘own thing’ from time to time but just as with individual stocks most move in the direction of the majority. World markets are increasingly moving in tandem.

Some of Schannep’s fellow travelers were checking their stock account values daily which often happens in an extended bull market because it’s so-o-o much fun! One admitted that they don’t even look at all when the market is going down. In both cases it is silly on the one hand and stupid on the other – why is Schannep reminded of an ostrich? Markets, of course, go up AND down, and on a daily basis there is nothing anyone can do about it but with a longer term view there IS something to do about it. That’s where market timing comes in. There’s a time to be fully invested (in a bull market) and there’s a time to lighted up or be out all together, as will be the case at some point. Keeping one’s eye on the ‘big picture’ is the focus of this Letter. The long-term historic record shows that there have been only 8 of the 25 bull markets of the 20th-21st century that completed their 4th year. This 2002-07(?) bull market was one of them with an 87.7% gain to this week’s highs for the Dow Jones Industrial Average. The Standard & Poors 500 Index has almost doubled for a 98.2% gain. While those are nice gains, they actually are the lowest for bull markets lasting this long as was shown graphically in last October’s Letter and in table form in last month’s Letter. So where do we go from here, you say?

As you know from the Special Report on Bull Markets of the 20th-21st Centuries only 4 of the previous 7 longest bull markets went on to complete the 5th year which would be this next October 9th for this bull market. So if this one does continue, that will bring the number entering their 6th year at 4 of 8, i.e. 50%. Not long odds. There are lots of reasons why it will continue and there are lots of reasons why not. The market is not always reasonable however, so there is no point in dwelling on them. You know, for instance that Schannep has been concerned about 1) the inverted yield curve, 2) the housing recession, 3) the price of oil, 4) the war on terrorism, etc, as possible reasons for this bull market to end. Schannep won’t rehash those problems. The economy HAS slowed but thus far is not in recession. On the favorable side of the ledger is history: of the 4 bull markets that completed their 5th year the average gain in that year was +31.9% (this one has been up +15% so far). In addition, half of those (two) finished the 6th year and were up another 31.4%. So if the market can beat the odds it will be jolly good, indeed.