Sound Familiar?

[I realize that my articles have been heavily money-oriented of late. Oh, well. Sometimes survival just comes down to calling a fig a fig. - c]

We have been calling for the market to roll over into 2012 as we head into what we believe historians will call a Depression. Yet everyday the market is open lately, it seems like a good day as stocks shoot to the moon. Talking heads come on TV and say the recession is over and that housing is bottoming. Is it therefore time to buy stocks aggressively?

We must look at the real question: Is the bottom ACTUALLY here, and is it time to get long stocks for the long term again? Have we made a mistake by selling as the Dow got to 9000 and above?

I would like to show you an interesting chart. This chart maps out the recent fall in stocks prices and overlays the price action with 3 other bear markets in the past 80 years:

The Road to Recovery?

Click chart to enlarge.

This chart shows market rallies from the low points of each of the crashes and what the market did after the low point. The blue line is the current rally, the green line is the 2000 dot com crash, the red line is the Oil Crisis crash, and the gray line is what happened during the Great Depression. Keep in mind that each crash had it's own issues, and that no crash will act the same as a previous one. As you can see though, so far we are tracking the rally that looked like the bounce from the Great Depression. So we are at a very interesting point. Do we continue to go up like the previous two rallies after recessions, or do we start to fall from here like the 1930s? This is the million dollar question of which we do not know the answer. What we can do though is compare these economic times to that of previous periods.

First of all – I ask, are things any different now in psychology than they were during the 1930s when the market rallied 50% from it's initial low? Judging by these quotes below, it looks eerily similar:

September 1929

"There is no cause to worry. The high tide of prosperity will continue." — Andrew W. Mellon, Secretary of the Treasury.

Sounds like Ben Bernanke in 2007 and 2008 saying that housing would stay strong and that there were no bubbles.

Now lets look at what the gurus were saying during the great rebound during the end of 1929 through the middle of 1930.

December 28, 1929

"Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression." — Associated Press dispatch.

January 13, 1930

"Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today." - News item.

January 21, 1930

"Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction." - News dispatch from Washington.

January 24, 1930

"Trade recovery now complete President told. Business survey conference reports industry has progressed by own power. No Stimulants Needed! Progress in all lines by the early spring forecast." - New York Herald Tribune.

March 8, 1930

"President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days." - Washington Dispatch.

May 1, 1930

"While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity." - President Hoover

Is anyone reading this as scared as I am that our current heads of state and heads of business are saying nearly the same thing today? These were the remarks that came out during the massive rally from an initial low in November 1929 through May of 1930. Eventually the market started to roll over again and go down, but they didn't believe it yet:

June 29, 1930

"The worst is over without a doubt." - James J. Davis, Secretary of Labor.

September 12, 1930

"We have hit bottom and are on the upswing." - James J. Davis, Secretary of Labor.

November 1930

"I see no reason why 1931 should not be an extremely good year." - Alfred P. Sloan, Jr., General Motors Co.

June 9, 1931

"The depression has ended." - Dr. Julius Klein, Assistant Secretary of Commerce.

Were we in fact at the bottom and things had turned up for the better? People who bought into the good news and invested proceeded to lose 90% of the value of their investments after this “recovery” everyone was certain was upon them, had taken place. Assurance was coming from the supposed smartest people in the land. Today we are getting the same rhetoric. Do we buy into it? I'm not willing to bet 90% of my wealth that the government is right in determining that the worst is behind us.

See more charts and read more of "Time to Be a Cautious Investor" via SeekingAlpha.

Herbert Hoover fishing, Rapidan River, Virginia, August 20,1932.

Gone fishing. - c