by Eric Poos

October 2011 — History repeats itself and many of my clients wonder where we are in the financial landscape. Are we starting a new bull market? Or are we in an ongoing bear market? When is the market going to continue going up or when is the market going to drop again to find its real bottom?

A quick look at the past couple of decades shows that from 1982 to 2000 we had a massive bull market that took the S&P 500 from a low of just over 100 in 1982 to a high of 1530 in 2000 — a truly phenomenal return of 1500 percent. The Dow Jones industrial average did slightly better and the tech-heavy NASDAQ was up over 2800 percent in the same timeframe. Unfortunately, the bull came to a screeching halt because the “tech bubble” popped. In came the bears, helped along by the terrible terrorist act of Sept. 11, 2001, and by 2002 the S&P 500 had lost slightly over 50 percent, the Dow lost about 40 percent, and the NASDAQ unbelievably lost almost 80 percent. Then by late 2007, we had recovered all the loss and a little more in the S&P 500 and the Dow, but the NASDAQ had only recovered about 45 percent of its losses.

Soon afterward, unfortunately, the housing bubble started collapsing and a complete financial meltdown threatened to happen, which caused the market to sell off again — so we again had massive losses of around 50 percent. By June 2011, the S&P 500 and Dow had recovered about 80 percent of their last losses, with the NASDAQ completely making up the latest losses, but still woefully short of its all-time high of 2000. Then in August 2011 we were experiencing volatility due to uncertainty about our economy and the European debt situation.

So where is the market going from here? If the economy improves just a little bit, unemployment starts to drop just a little bit now and then, and if there are no major world events to upset the apple cart, we could have a strong market for quite a while. So the question becomes, are there any more bubbles to pop? And are there any more world events that could come by and negatively affect our markets?

The unfortunate answer is that there are many different possibilities out there — just to name a few, further unrest in the Middle East, another successful terrorist attack in America, further expansion of the debt crisis in Europe and the possible collapse of the euro. Also, the one big bubble left unpopped and staring us in the face currently is the artificially low interest rates that the Federal Reserve is using to prop up our economy. Eventually interest rates are going to have to rise, and this is usually not a good thing for the stock market and can be devastating for bondholders.

A misconception that many people have is that bonds are a safe investment. Interest rates are very low right now and it would not take much for them to double. If that were to happen over a short period of time, the value of most bonds would drop by about 50 percent. Now if you had short-term bonds that you actually owned, you could wait until they matured and get your money back. Unfortunately most people own bond funds instead of the actual bonds, and therefore do not have the option of holding on to maturity. Some people have purchased longer-term bonds and bond funds for the higher returns available. This means holding the bonds until maturity could cause those investors to get very low relative yields for a very long time. Either way, it is not a very happy situation to be in.

Wherever you are currently in your financial world, a financial professional can help you explore many flexible strategies to help any plan.

Eric J. Poos, owner of Eric J. Poos Financial & Insurance Services, has been in the financial and insurance businesses for over 19 years, and is dedicated to helping his clients find financial peace of mind no matter their current situation. Contact Poos at epoos@aicinvest.com or 650-728-7598, or visit www.ejpfin.com.

Securities and investment advisory services are offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Eric J. Poos Financial & Insurance Services are not affiliated. Additional products and services may be available through Eric J. Poos Financial & Insurance Services that are not offered through AIC.