Leuthold Weeden Capital Management was founded in Minneapolis by Steve Leuthold in 1987, it now runs mutual funds with AUM of $3.5 billion. The old man is retiring as Chief Investment Officer at year’s end paving the way for behavioral strategist and director of research Doug Ramsey to take the wheel.
Doug was interviewed in Barron’s last weekend about the general market environment and his outlook. He says that the US stock market is essentially acting as a giant consumer defense stock when viewed in the context of the global stock market; we are down but not nearly as much as the rest of the world. Most importantly, he distinguishes this bear market from others by some important characteristics that I wanted to pass on to you guys…
Ramsey: We recently examined the difference between what we call recession-related bear markets in the U.S. since 1945 and what we call noneconomic or stand-alone bear markets that are not immediately associated with recessions. There have been eight economic bear markets since World War II and five noneconomic bear markets. A classic example of a noneconomic recession would be 1987. There were a couple in the 1960s: 1962 and 1966. Interestingly, the magnitude of the decline in a noneconomic bear market is almost the same as it is in an economic bear markets. The median decline of economic bear markets is 30%. The median decline in the noneconomic bear markets is 27%.
Why has the broad market not fully reflected the viciousness of this correction?
Ramsey: The U.S. is a relatively defensive market. Safe havens are the last to fall, and we are starting to see some of that. That is encouraging. We have seen gold falling in concert with the stock market.
This overall cyclical bear market could be in the seventh or maybe the eighth inning. While the typical noneconomic bear market is almost as great in magnitude, at 27% versus 30% for the economic bear market, the positive news is that the typical noneconomic bear market is much shorter. It tends to last six months, compared with 18 months for recession-related ones. Since the peak at the end of April, we are five months into it.