Saturday, February 14, 2009


is in the making with this bear market. As a fan and student of the markets, I find the action in stocks over the past year fascinating. I was looking over some bell weather-type stock charts and calculated the following peak to trough losses for the stocks listed below. Many of these stocks are now higher after the panic fall lows, while others (e.g., Dow Chemical) are in the midst of further plunges as I type this. The percentages listed below are "worst case scenario" peak to trough changes over the past 1-2 years, depending on the stock, so these are not actual current investment returns and the numbers ignore dividends. Nonetheless, take a look at this list:

Berkshire Hathaway (BRK.b): -51%
Intel (INTC): -55%
Home Depot (HD): -57%
Dupont (DD): -58%
Merck (MRK): -60%
Apple (AAPL): -61%
Caterpillar (CAT): -64%
Boeing (BA): -65%
General Electric (GE): -73%
BHP Billiton (BHP): -74%
Research in Motion (RIMM): -76%
American Express (AXP): -77%
Dow Chemical (DOW): -78%
Alcoa (AA): -85%
Harley Davidson (HOG): -85%
Macy's (M): -88%
Ford (F): -89%
Bank of America (BAC): -92%
Citibank (C): -94%
General Motors (GM): -95%

You know what the worst part about these stock numbers is? This bear market isn't over yet. Some of the stocks that have weathered the storm OK so far are going down - hard. My favorite pending example? McDonald's (ticker: MCD).

The big picture is most telling. Here's a 20 year monthly chart of Mickey D's:

The last cyclical bear market, in part driven by the dot com internet bubble bursting in 2000, made the McDonald's stock price drop 75% peak to trough (late 1999 peak to early 2003 lows). We are now in the midst of a collapse of our banking system and Wall Street due to the bursting of a housing market and general debt bubble. You think maybe MCD may not weather the storm this time either? I GUARANTEE you that MCD will fall at least 50% from these levels and the stock will undergo a MAJOR decline in 2009. No ifs, ands, or buts about it. I will refund your subscription fee for this site if it doesn't happen... ;]

Here's a shorter term 3 year weekly chart for MCD:

If you've been long this stock up to this point thru this wicked bear market, you haven't done too bad. Sell now while we're still near the top. Trust me, you won't regret it. I will not be shorting this stock, as there are better candidates out there in my opinion. The point is that no blue chip stocks are safe in this environment as a long-term hold through the storm. If you insist on a buy and hold strategy thru this mess, I suggest that there are only two good options: cash equivalents (e.g., gold [my preference], U.S. fiat dollars, or U.S. federal short to intermediate term debt/bonds) and gold mining stocks.

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