Being Street Smart

By Sy Harding, editor
Street Smart Report Online

       The year 2003 is history.
       For the stock market it was quite a year. First and foremost, 2003 confirmed that the three year bear market, one of the most severe in the last 100 years, ended in October of last year. The Dow gained 25.3%, the S&P 500 gained 26.4%, and the Nasdaq gained 50% for the year.
       The market also confirmed its relationship to the economy; that it is unconcerned with surrounding conditions, interested only in what it expects conditions will be six or nine months ahead. So never mind the dismal economic and earnings numbers of last spring and summer, or warnings from major companies that they could see no light at the end of the tunnel. Never mind a war, and its continuing messy aftermath. Never mind corporate, Wall Street, and mutual fund scandals. Never mind worsening international trade relations, or a plunging dollar. Never mind madness in the political situation in California or in cows in Washington State.
       Nothing could hold back the new bull market, or even cause it to take its traditional summer-time pullback.
       President Bush, Congress, and the Alan Greenspan Federal Reserve revived the ailing economy, utilizing the most aggressive economic stimulus plan the world has ever seen, along with a huge supporting cast of U.S. consumers who responded to the stimulus by borrowing and spending on cue (without regard to debt loads that were already at record levels).
       However, the credit actually must go to the Four-Year Presidential Cycle, with the President, Congress, Alan Greenspan, and consumers, only playing out their roles as written and directed by the power of the cycle.
       We can be quite sure of that, since such economic recoveries and big market rallies from the low in the 2nd year of the Four-Year Presidential Cycle have been the market's unbroken history since at least 1914; in war or peace, good times or recessions, rising or falling interest rates, and no matter which party was in office.
       I've pointed it out a number of times over the years. The following is from my Being Street Smart column of November, 2002, just over a year ago, as the market, after a cruel six straight months down, was rallying off what later proved to be its bear market bottom.

       "The overall situation supports my prediction last summer that the stock market's six straight months down would end in October, and be followed by a substantial rally through the winter, on the back of an improving economy.
       It could even be that the rally that began off the October 9th market low is more than just the expected substantial rally, but marked the end of the bear market, and beginning of the next bull market.
       I base that possibility on a couple of significant factors. As I have pointed out several times this year; from the low in the second year of every Administration since 1914 there has been a substantial rally to the market high the following year, a rally in which the Dow gained an average of 50%. This is the second year of the Bush Administration. Even more compelling, seven of the last eight bear markets ended in the 2nd year of the Presidential administration in which they occurred.
       Why does that happen? History shows that each Administration seems to be willing to take a correction in the economy early in its term, and then pulls out all the stops to make sure the economy has recovered and is booming by the time the next election rolls around. The Bush Administration is following the same pattern with its aggressive actions this year to re-stimulate the economy - extremely low interest rates, promises of tax cuts, and increased government spending even if it means a return to sizeable budget deficits. Will it be the first Administration since 1950 that is not able to stop a bear market that is underway in the second year of its term? . . . . So again I say, enjoy the rally. My upside target is still 10,300 on the Dow and 1700 on the Nasdaq by the time the market's current favorable season ends next April, but not without short-term volatility on the way to those destinations."

       My targets for the rally were not reached by April, but were reached recently. And as we now know, once again the Four-Year Presidential Cycle came through with a huge rally from the low in the 2nd year of this presidential administration, to the high the following year (2003). So we can add another occasion to the record that has been going on since 1914.
       I'll be writing more about the presidential cycle over coming weeks, since we are now in the election year of the four-year cycle, and a number of incorrect assumptions regarding election years have sprung up over the years.
       Editor's Note: Sy Harding is president of Asset Management Research Corp., 505 East New York Ave., Suite 2, DeLand, FL 32724, publisher of The Street Smart Report, 1 year, 17 issues, $250 (now in its 17th year of exceptional market research for professionals and serious investors) and The Street Smart Report Online at www.StreetSmartReport.com, 1 year, $225. Timer Digest has consistently ranked Mr. Harding in the Top Ten Timers for Stock Market Timer, Gold Timer and Bond Timer since 1990. In his 1999 book, Riding the Bear - How to Prosper in the Coming Bear Market, Sy Harding outlined a simple strategy that works in bull and bear markets. Mr. Harding's Seasonal Timing Strategy (STS), continues to significantly beat the Dow and S&P 500, doing so over the last one-year, two-year, three-year, and five-year periods, and back-tested for the last 10, 20, 35 and 50 year periods. It did so with its normal two trades a year, using just an index fund, and did so with half the risk of buy and hold investing, as the strategy is in cash between 4 and 8 months every year. Visit www.StreetSmartReport.com for FREE stock market commentary and a Special Trial Offer.