Business Cycle & Expected Returns

Well, 2 positive weeks back to back in the market and perhaps starting on week 3 today. The momentous amount of government intervention and tinkering makes it difficult to properly analyze what part of the business cycle we are in at present. On most levels it appears we are late in the contraction but the medicine prescribed by the government may be masking some additional ills...not sure. What we do know is that generally speaking, the sharper the decline ...the stronger the recovery.

David Booth , President of Dimensional Funds (DFA) published a brief article last week on expected returns in the market. He says in part " we believe expected stock returns are now higher than before the drop, rather than lower". The math leads one to think this is likely so.

The worst real estate market in the country (California) saw a 42% year over year increase in sales during February . Prices were almost 40% lower than the year prior. Over half of the transactions were foreclosures with a median sales price of $373,000. The real estate market seems to be trying to find a bottom .

Speaking of market bottoms, almost every interaction these days seems to contain the query of "is this the bottom?" Really, it doesn't matter much. Few have made money "finding the market bottom". On the contrary, many have lost $ trying to time the markets ins and outs.