Global equities are in a bear market. But that does not mean that equity prices will just go down in a straight line. There have already been rallies and there will be more before equity markets reach a bottom. Indeed, I expect a large rally is now in the offing.
For instance, on March 17, the US Federal Reserve announced that it had arranged to bail out collapsing investment house Bear Stearns, with JPMorgan buying the company for $2 (ultimately $10) a share. That was the signal for a global equity market rally.
The Fed had acted to avert a systemic financial crisis and, as Lehman’s chief executive, Dick Fuld, put it, "the worst is behind us". The consensus was that the credit crunch would now dissipate and that the economy would avoid a recession.
Equity markets continued to rise until mid-May. After...
