Pack of Bears

The NY Times posted an excellent graphic on how the current U.S. bear market compares to previous bear markets since 1929 in terms of severity and duration.

You can't draw any conclusions from the graph because it's entirely "historical," but you can consider whether the severity of the risks faced today -- relative to the recently-ended boom -- are as serious as they were in the past.

We think the balance of risks today are a bit more severe now than during past bear markets, so that the rapid, sharp declines in equities in the past few months are justified. That's why we're not rushing to raise our equity allocation to our strategic target of 65%, though we became more positively inclined in the past couple of days. The prospect of an unwinding of the dollar as a reserve currency, the potential breakdown of the European Monetary Union, and other threats -- alongside the "good" news that some governments are starting to recapitalize their nations' banks -- means we think there's an "even" chance of earning better-than-cash returns in the next 3-5 years.

We're still waiting for some emerging markets to face a severe financial crisis, and for more bank failures, before we're comfortable raising our equity weighting to our long-term strategic target.