Blogging The Bears: A Book Review In 4 Parts (Part 1 – 1921)

AUTHOR: Russell Napier
RATING: 10 of 10


  • Fairly in-depth look at economic conditions and market sentiment for each of the four “major” bears surveyed in the book, with each bear containing the following sub-sections:
    • The road to the the bear
    • The course of the Dow
    • Structure of the market
    • The stock market during the bear
    • The bond market during the bear
    • At the bottom
    • Good news and the bear
    • Price stability & the bear
    • Liquidity & the bear
    • The bulls & the bear
    • Bonds & the bear
  • Author outlines several key “landmarks” which flag a major bear market and possibly, its bottom.
  • Napier copiously quotes actual articles from the period so readers can get a sense of exactly what the pundits and talking heads were saying at the time.
  • For the two bears in 1921 and 1929-32, Napier discusses the impact of the Federal Reserve, a new player in markets at the time.

Weak Points

  • Writing style is not concise and makes for dry reading.
  • Napier samples investor commentary from the Wall Street Journal for 2 months before and after the market bottom but it’s unclear if this commentary is useful.  For instance, if pundits were bottom-calling throughout most of the bear market, of course they will get it right at the bottom but it’s difficult to get a sense of what these pundits were saying before then.

Obviously, rating the book 10 of 10 means I highly recommend the book. But instead of summarizing the book, I decided to do a brief synopsis of the key points I took away from each bear market that Napier analyzes. I assure you that my brief discussion is only a small, incomplete snapshot of Napier’s insights into these time periods.  If you are interested in learning the history of the four great bear markets of the 20th century, you owe it to your portfolio to get this book.

1921 Bear Market

Napier’s discussion will sound familiar to readers who regularly watch CNBC or Bloomberg.  Do bear markets bottom in a huge, capitulating wash-out? Do markets discount the future and will stocks rise 6 months before the economy recovers?  What happens if the Fed blows up its balance sheet?

Napier focuses the reader on the fact that we were still on the gold standard at the time and the Fed was only a few years old and coming off major monetary intervention in the wake of WWI.  He also points out the spectacular earnings boom which peaked in 1916.  In fact, this watermark would compare favorably even to 2002 earnings in real terms.  A few other interesting tidbits:

  • During that time, institutional investors were not the key players in the stock market like they are now. Instead, institutions preferred bonds.
  • A corollary to the previous point would be that, during bull markets, Wall Street were the big owners of stocks.  Of course, they sold off stocks at the peak to retail investors so that at the bottom of bears, individuals held a larger proportion of stocks.
  • While deflation is normally associated with the 1929-32 bear market and the Great Depression, the largest post-war deflation actually took place in 1921.
  • At the worst of the bear, stocks as a whole sold at a fraction of the replacement value of their assets.

Reminiscent of today’s conditions, many market watchers commented on the Fed’s balance sheet and monetary growth as key markers for improving conditions.  And then, like now, timing is everything and the lead and lag times between Fed cuts and recovery are hard to track.

Napier asserts that the pundits who got it most right were those focused on price stabilization.  With some countries seeing double-digit deflation (including the US), markets eventually recovered once demand picked up in the face of lower prices.  Eventually, the bear market bottomed on low volumes and began recovery even as participants disregarded or mistrusted good economic news.

Other parts in the series:

More on this topic (What's this?)
Stages of a Bear Market
S&P 500 Screening: Candlestick Patterns
Scary Bear Flag Implications (NASDAQ, SPX, DJIA)
Read more on Bear market, Bond Investing at Wikinvest

6 Responses to “Blogging The Bears: A Book Review In 4 Parts (Part 1 – 1921)”

  1. Sivaram Velauthapillai Says:

    Thanks for the first part of the review. I’m thinking of getting the book and it’s good to hear your thoughts…

  2. The Enlightened American » Blogging The Bears: A Book Review In 4 Parts (Part 2 - 1929 thru 1932) Says:

    [...] Blogging The Bears: A Book Review In 4 Parts (Part 1 – 1921) [...]

  3. The Enlightened American » Quick Thoughts On The Market Says:

    [...] is a reason, after all, why I’m blogging the book, Anatomy of the Bear, in 4 parts (view part 1 and part 2 and I promise part 3 later this week). But as I said in the last portfolio update, the [...]

  4. The Enlightened American » Blogging The Bears: A Book Review In 4 Parts (Part 3 - 1949) Says:

    [...] Part 1 contains my bullet point summary of the book and the 1921 bear market. [...]

  5. The Enlightened American » Blogging The Bears: A Book Review In 4 Parts (Part 4 - 1982) Says:

    [...] Part 1 contains my bullet point summary of the book and the 1921 bear market. [...]

  6. The Enlightened American » Portfolio Performance +2.1% Through February 2009 Says:

    [...] the Bears” series (a book review of Russell Napier’s Anatomy of the Bear — see part 1 & part 2) will post tomorrow. Given the current economic dislocation, it seems probable [...]

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