It's 1998 all over again...

This is just a quick note due to being busy, busy today. Nevertheless I wanted to share my analysis of what I think has just happened in the markets.

This is a repeat of 1998. There is no yet proven economic cause for a bear market at this point, except for the putative anticipation of a recession in the future.  A panic collapse of a greedy financial idea caused each market collapse: in 1998 it was hedge fund stupidity and the Russian default; this time it is ignorant and/or fraudulent mortgage generation and repackaging with poor credit oversight at every step.

Both market collapses took parts of four months, and both shaved over 20% off the market. I am basing that percentage shave in the current case on the overnight SPX on some data vendors, including mine, which hit a low of 1249.94 overnight, making the drop off the October top  >20%. Some indices were down >20% within NYSE market hours.

In both 1998 and now, sentiment and some breadth measures reached their lowest points in years, and the 400 day moving averages were cracked. Consumer sentiment  was not unduly affected either then or now.  Few consumers, on a percentage basis, own stocks, so the financial panic did and does not extend to them if it is over quickly. (Even from 2000-2002 it didn't discourage the consumer except for the mildest recession and quite possibly the shortest one in history.)

Two further reminders: Greenspan intervened strongly near the end of the collapse in 1998, and the market went to new highs within a few months. Obviously I can't guarantee that will happen, and we could at least retest the overnight lows in a few weeks. But it may not be as bad as it has looked this past week or so.

As for differences between 1998 and now: interest rates were higher in 1998, the dollar was stronger, and general price levels were falling rather than rising, and there was no presidential election looming. But those are what Ed Seykota called "funnymentals" not technical or historical market comparisons. Fundamentals are harder to use in prediction. The next recession will  not be certain until it's nearly over. Not every slowdown leads to recession.