Season 2, Episode 1: What fresh hell is a “bear” market?

The difference between a bear market and a recession, and trying to figure out how much to freak out

Before the real Season 2 starts, Caitlin drills Sara about what the hell is going on in the economy and why the financial news just keeps getting worse. How many “all time” stock market lows can we hit until we should start squirreling away sea shells, Pop Tarts and collectible Beanie Babies? Will our retirement accounts vanish into thin air? Does the economy have Covid? Will it ever get better?

Sara slips into her late night radio DJ vibe to calm us all down and lead us through these uncertain times. Also, she explains what exactly a bear market and a recession are, and how surfing is an excellent financial management strategy right now.

Ask us your dumb investing and finance questions for Season 2 on our Ask Us page!

Music by Bad Bad Hats and Devmo.

Transcript for Season 2, Episode 1: What fresh hell is a “bear” market?

Music intro by Bad Bad Hats

Caitlin Welcome to women on the verge of a financial breakthrough where we are figuring out finance. One dumb question at a time. I'm the dummy. Caitlin Meredith. I'm a mediator and coach based in the Bay Area.

Sara And I'm Sara Glakas. I'm an investor advisor and founder of Black Barn Financial, a registered investment advisor here in Austin, Texas, and also the founder of the Austin Women's Investing Group, which can be found on Meetup.

Caitlin Before we get started, Sara and I wanted to thank everybody so much that's left reviews on iTunes or anywhere else. We get all weepy and giddy every time we see one and we're just so appreciative. So thank you. We're working on a season two and we're hoping to get some sponsorships. So if anybody who hasn't left a review could help us by posting one or even just texting an episode that you found helpful to three of your friends or people you think that could benefit from it. That would also be a huge help. Okay, so Sara and I, we're going to wait till the fall to do a season two, but with the current shit show that our economy seems to be, it seemed like having a few little mini episodes just so I could grill Sara about what is happening would be maybe useful to other people. So, Sara, my first question is what the fuck and how and why and how come and when and what is happening?

Sara Oh, my gosh. You might have to be a little bit more specific than that.

Caitlin No, no.

Sara So if you can use your words to be a little more specific,.

Caitlin Let's say when I turn on the radio and there's news on it is bad news about the stock market. Like every day feels like the stock market has just crashed to all time lows and woops, no, the next day it crashed even lower lows and no one can afford anything anymore. Inflation is off the rails like oh, the economy seems to be like has COVID long haul COVID. Like what is happening? I mean, I think.

Sara That's probably a pretty good way of putting it. We're now in the post-pandemic era. You know, you had an economy that in March of 2020 was just shut down to basically zero and then slowly restarted since then. During that period of time, we've had elections. We've had all sorts of shifts in the way people work, in the way people live. People are on the move. They're making changes, and all of that is happening in a relatively short period of time. Right. This was only two and a half years ago that we just shut this whole baby down and this two and a half year period, I think, of restarting the economy and of all of us, the participants in the economy, figuring out what we are going to do going forward. It's just caused a lot of really strange things to be going on.

Caitlin You sound so calm, Sara. Like, is this all part of the plan? You knew this from the beginning. Not your plan. I don't think you're that powerful, but, like, is this. Yes. Yes. This was exactly what was destined to happen. We could all see it from March 2020. Or have you been surprised to.

Sara Oh, I'm totally surprised. And I think maybe my sense of calm comes from, you know, like if you're in the markets, you should never act like you know what's going on because, you know, the economy, the stock market, the bond market, the real estate market, these are systems that are so complex that they're they're somewhat unpredictable and certainly very unpredictable in the short term. So anyone who says they knew that this all was coming, you know, is either lucky or, you know, probably fibbing a little bit. But when you're investing, the most important part of being an investor over long periods of time is not to panic during chaos.

Caitlin Yeah, right. Testing us right now, really testing us.

Sara Right. So that feeling of chaos is what scares most people away. And so if you are planning on being a long term investor, you eventually have to you have to learn how to control it and how to accept the things that you cannot control. And understand that what we're all working with here is a really complex system that has so many come. Opponents that are unpredictable. And by participating in that system, we expect to be compensated with higher rates of return over time. So I'm not calm. This isn't playing out the way that I thought it would. Bear markets are very painful to go through. Recessions are scary to think about. But it's all part of. A system where this something like this has happened before, something like this will happen again. So kind of the panic or like the gnashing of teeth while it's happening isn't super productive.

Caitlin So you're saying I need therapy or.

Sara Or just back away? Just disengage. All right. Well, except except for this podcast.

Caitlin You just said two things, though, that fill me with anxiety, not just because of what I think they might be, but because I don't exactly know what they are. So let's start with bear market. Like, I hate it when people use that term because it's such an insider term. Like, I already feel so stupid. I'm like, Oh yeah, it's like remembering what's former and latter and a conversation. I can never get that right. So what is the freaking bear market and is it worth anyone else but you and your fellow nerds to understand what it is and mean? If I guess if only to understand what people mean when they say it, but like is it useful for the everyday investor?

Sara Not really. It's. So a bear market is a somewhat arbitrary measure. It means that the price of something has fallen by 20% from its recent highs.

Caitlin Like, oh, wait, the price of something. So not a consumer, not like a gas, because that's gone in the other direction.

Sara Well, gasoline prices since go down. Right. Gasoline prices since last month are probably in a bear market. Have gasoline prices fallen by 20% since June?

Caitlin Okay. I haven't been reporting this at a when at the end of July 2022. So when the prices for something go down by 20%. Yes. So like overnight or over a period of time or. It doesn't matter.

Sara It doesn't matter. It's over some period of time. So in the stock market, the S&P 500, its highest recent price, its highest all time price was something like January 3rd or January 4th. Prices fell from something like 4800. On the S&P 500, they fell by 20%, kind of got pretty close to 3600. That's a bear market in stocks, we would say. But you can have a bear market in real estate. You can have a bear market and gasoline prices, you can have a bear market and lots of different things. It's just the main thing to remember is bear market means prices are going down. So think about a bear like a mama bear swiping her paw down.

Caitlin Is that really what is?

Sara Knocking someone off a tree? I can't remember what the story about a bear market is. That's something that my friend Meredith told me once, like 12 years ago. That's how she remembers what a bear market is.

Caitlin Okay.

Sara And so you can think of a bear swiping her paw down. The most important thing is it just means prices are going down and 20% for a lot of people is a relatively large amount. So but the 20% is somewhat arbitrary. It doesn't nothing happens once you hit 20% other than people start saying bear market a lot.

Caitlin Noted. We said it many times just in the last 5 minutes. Okay. So when I hear a bear market like this is a little bit of a tangent, but is that something for them to later write in economics textbooks like it was a bear market? Like does someone ring a bell and be like, officially this is a bear market? Or does everyone sort of use that term loosely? Like, is this official in any way?

Sara I mean, will look back on it. And when you look at a price chart of, let's just say the stock market, if you look at a price chart of the S&P 500. Sometimes people will go through and they'll highlight the bear markets. So they'll put like a little bar showing you how long a bear market lasted. So you exit a bear market with a bull market. So a bull market is the opposite of a bear market. Bull. Think of, you know, his horns going up as he's tossing someone into the air.

Caitlin And she has two fingers up to denote horns, bull horns.

Sara This will have to be like a video that we do sometime for, like, our premium.

Caitlin More like a deer, I have to say. Okay, but I could go on. So this gold comes and brings the prices back up over some period of time, right?

Sara Over some period of time, those price declines will turn into price increases. And when the price has gone up by 20% from its most recent lows, then we call it a bull market, and that's the end of the bear market. So sometimes people will go through it on a chart and they'll kind of show you how long that took to happen. How long does a bear market last? I think I read somewhere recently that the average bear market since World War Two has lasted 9.6 months.

Caitlin Right. Are we now?

Sara Six or seven.

Caitlin Oh, really? Yeah. All right. Oh, wow. Okay.

Sara That's just the average. It's been worse, right?

Caitlin Test it.

Sara Right. But, yeah, when you look back on charts, someone will consider that to be an important way to delineate. Yeah. When prices were going down versus when they were going up on a chart.

Caitlin Okay. So what I understand from this is the bear market is when the line on the graph goes way down, either real quick like a cliff or over a longer period of time, but very steep and it goes down and it has to have gone down 20%, whatever the hell that means for the chart. Yep. And that also there's nothing I can do with that in like other than to situate if I'm looking at my portfolio like, oh shit, everything is way down. It makes more sense. It's a bear market rather than dumb decisions I individually made about my investments. Like it means we're all in it together.

Sara Yes, that's a great way of putting it. It's just part of what markets do. Markets go up, markets go down, they go sideways. But it doesn't necessarily mean you did anything wrong. You're just at this part in the cycle.

Caitlin It's all I was looking for.

Sara Everything is going to be okay.

Caitlin I didn't do anything wrong. Okay. The second thing you said was recession, which, of course, you know, just bad, bad, bad, bad, bad. That makes us feel very anxious about people keeping their jobs, about being able to afford milk. Like just really practical, everyday things is saying we're in a bear market. The same thing as saying we're in a recession.

Sara No, I mean, a bear market is describing prices of assets like stocks or real estate or resources like oil and gas or gasoline or something like that. Recession is describing the economy. So I think, you know, the economy is like the collection of goods and services being produced in a country. So, right. The U.S. economy is not just the stock market. It's not just gasoline prices. It's all of the businesses and all of the consumers and, you know, all of the banks and pieces of the financial system working together to make that really simple. I tend to think of the economy as. It's like think of how people have jobs, right? Jobs are really the most important part of an economy. It's how people make money. It's how people spend money. And so that's really the economy. And it's different from the market. The markets are somewhat connected to the economy and the economy is connected to the markets, but they're not the same thing. So a recession just means that in the economy, business is slowing down. Maybe the consumer is slowing down. We're not spending as much money. You often have layoffs or hiring slows down. And as part of that, you often have markets declining. You know, bear markets happened during recessions. That's really, really common, but they're not exactly the same thing. So recession is describing this slowdown in the economy.

Caitlin Okay. So there could be a recession that happens without a bear market. But there couldn't be a bear market necessarily without a recession. It would be a very strange.

Sara There are bear markets that happen outside of recessions and they tend to be fairly shallow. So by that I mean that the decline maybe is 20, 25%. No big deal recovers pretty quickly when you have a recession and you have businesses and consumers slowing down, that tends to produce more severe market reactions. So instead of the stock market falling 25%, maybe it eventually falls 40%. And so you do have steeper market declines associated with recessions.

Caitlin Okay. And are we officially saying we're in a recession or are we flirting with recession or are we recession adjacent? Like what? What's the word on the street? The Wall Street?

Sara I like the word recession adjacent. Okay. So this is a really good time for this question. Just what day is today? Today's Friday, the 29th. Yesterday, they announced GDP, gross domestic product figures for the second quarter, and it was a negative GDP. Most people kind of use a rule of thumb that two quarters of negative GDP equals recession.

Caitlin And sir, what the hell does that mean? Two quarters. Isn't that a half?

Sara Yeah, it's half a year. Right. So we had the first quarter, we had negative GDP.

Caitlin Of the year. Okay. Okay.

Sara Oh, I'm sorry. Yes. Quarter of the year. Right. So January through March. April through June.

Caitlin So the first six months we were low.

Sara We had negative GDP. That meant that the economy was lower. Then it means it was negative. It was getting.

Caitlin Smaller, reducing. Okay.

Sara It just it just means the economy was slowing down by enough to go negative.

Caitlin Okay.

Sara So right this very moment now, everybody is arguing over whether two consecutive quarters of negative GDP growth is enough to declare a recession or does something else bad need to be happening at the same time. Because while we have two negative quarters of GDP, we also have a really strong job market and we have pretty strong consumer spending. So a lot of the other things that come along with recessions, we're not really seeing. We're seeing negative GDP growth, but we're not seeing a lot of the other things that normally happen during a recession. So we're still.

Caitlin Going to Bed, Bath and Beyond, but our stock market portfolios are shrinking.

Sara Yeah, and maybe it's not Bed, Bath and Beyond because they've reported awful business.

Caitlin But I was just there last week.

Sara You're the only one keeping them afloat. It's someone.

Caitlin You're welcome, Bed, Bath and Beyond.

Sara Maybe we can get them to sponsor our podcast.

Caitlin Okay. Oh, they're not doing great. But.

Sara I mean. But your question about does a bear market matter? You know, a lot of another question people are asking is, who does the term recession like impact? Right. Like, do we need there? What happens if the National Bureau of Economic Research, they're the people who look back and decide when a recession started and when a recession ended. And so is it important for us in the world to. Have a recession be officially declared or not. Right.

Caitlin Does it kick in supports like does it kick in higher social programs to help people that are jobless or something like that?

Sara No, no. I mean, one of the things that people are pointing out is that this definition of a recession is often used to score political points. Right. It's more of a political definition, like a recession is a failure.

Caitlin Because you can't blame it on somebody else.

Sara Right. So in an election year, you can see how that would be useful to be able to blame someone for a recession. And you can see how it would be useful to deflect that blame by saying we're not in a recession. So that's what we're in the middle of right this very second. But I would say that the most important part of a recession for most people and you and I talked about this the other day, the most important part of recession for individual investors is, is your job at risk? Are you at risk of losing your source of income? That's where most people get hurt the most in a recession. It's not necessarily that the markets are falling. If the markets are falling and you don't need to sell your investments, they'll eventually recover and go on their way. But if you lose your source of income for most people, that's a pretty serious emergency. Yeah.

Caitlin Yeah.

Sara So that the outcome of a recession or even the outcome of just a weak economic environment, even if it's not a recession, that connection to your income is what's the most important piece. Not whether you know the definite what, not what the definition of a recession is. Because like you said, nothing happens. If we are in recession. There's no automatic program that kicks in. There's no thing that automatically happens. There's just, oh, well, now someone kind of arbitrarily decided that we're in a recession now. That's the way we talk about it.

Caitlin But what strikes me about it is what we've talked about on this podcast before is the psychological impact it might have on people spending money. If all of a sudden, I'm told every time I look at a newspaper or whatever, Twitter, whatever, however people get their news now and it says We're in a recession. I just automatically have a reflex. Don't spend any money. Yeah. And like, okay, cut, cut things out because we don't know what's happening. It feels much more vulnerable. So I imagine like declaring it as obviously if you actually lose your job, you're going to be holding your wallet very closely also. But even if just the word recession, it's like this dark cloud where you start thinking, I shouldn't spend anything. Is the idea that people change their behavior because of the fear then really make something that was a possibility actually happen because everybody's so worried about it?

Sara Yeah, it could. And all of this is, you know, all of this is part of a cycle that plays out over and over again. You know, does the fear of recession become a self-fulfilling prophecy? Maybe. Right. People pull back and change their behavior enough. You could cause a recession by by getting ready for the recession. Right. But, you know, I think that what's important for people to remember is that, you know, while you're living through it, it seems like whatever the trend is, it seems like there's no way it could end. Right. There's no way it can resolve itself. It's just going to keep going the way it's going. And that's has never been the case. Right. Cycles resolve themselves. They turn around, they go in a different direction. So, you know, bear markets and recessions end and then the cycle plays out again. And it does come back to that, you know, in the economy, it's made up of human beings who are making these decisions from day to day and are really driven by fear and really driven by greed and driven by, you know, wanting to create a sense of financial security for themselves. And so, like, these things are cyclical and they are normal that, you know, they happen with relative frequency. So while it feels like. It's, something, you know, all of these problems are so huge, they could never be resolved. What what has always happened is people have resolved them. Businesses have solved problems. You know, something gets some solution gets duct taped together. And we kind of move on from whatever the crisis is. And I think that's going to happen this time, too.

Caitlin So soothing, Sara. Okay. Here, as a as a student of economic history, are you like, wow, this is just fascinating to live history, to be in the moment, to feel what it is like to be in like a recessive period that I. Only had studied about in my textbooks. Like, is there are you learning more about recession in the bear market by experiencing it right now? And sort of you have this intellectual component that most of us don't have. It's very sort of wise detachment.

Sara Yeah. I mean, he what they call economics, the dismal science. Right. It's being invented as we go. So every every economic cycle, there's opportunity to learn and also, you know, opportunity to see. You know, a lot of the tools that we use are developed out of the last crisis and they don't necessarily help us in the next crisis. Right. And so that part of the cycle I find incredibly fascinating. Right. That as we we just kind of keep making mistakes and keep solving problems and then making new mistakes and then creating new problems. And that just happens over and over and over again. But it does kind of create this opportunity to see how people organize themselves and the tradeoffs that they're willing to make. And like the serious, I don't know, social ramifications even of economic crises. So, you know, I think that maybe that does make me a little bit detached from what's happening. But also I have a lot of respect for the economic cycle. You know, a lot of respect for the people who are out there trying to predict where things are going again, trying to solve problems and trying to take advantage of opportunities that come up when you have these periods of dislocation.

Caitlin Oh, yeah. That's what we're going to talk about our next one. Okay. I feel like this detachment is such a benefit right now. But then it made me realize when the market's at an all time high, you can't really have a champagne party then because you're like, Oh, no. It'll go down. These cycles are very normal. There will be a high and then we will have a low that comes after. It's all just part of the normal cycle. So you're just there with your pipe, just like observing all of us, like silly little animals reacting emotionally. Like I. Yes. Just what I write about in the textbooks.

Sara No, I mean, it's it's not silly because, as you know, as an investor, like I have not predicted any of these swings in the market. Right. At any point in time. I feel like the conversation that I have with clients all the time is, you know, when the market is doing well, it's like, well, what are we going to do when there's a downturn? What are we going to do when there's a downturn? What are we going to do when there's a downturn? And we just talk about the downturn, the downturn, the downturn in order so that nobody, like you said, nobody can enjoy the bull market while it's happening. But that also it it just gets people ready for like the long journey that is investing. I mean, just these things. Yeah. Don't get attached. Don't get attached to whatever the prices today of whatever you're looking at. It's going to change tomorrow. That's what the markets are. So having like some idea and some non-attachment to what's happening right this very second and not getting attached to the idea that you can predict what the next move is, I think will give you longevity as an investor.

Caitlin Well, it's just so it's such a relief to hear that you can't predict any of this shit because, like, there's no there's no way for me to even pretend that I. So, like, not my job officially. Not my job. And it is your job, and you can't even do it, so.

Sara I know. Yeah. What am I good for? I mean, I'm pretty much, like, good at tossing people off the ledge, right?

Caitlin I'm really good at putting in perspective. Okay. I am so glad to have this context because the next conversation we're going to have in our next episode will be, what do we actually freaking do with our dollars right now? So let's talk about that the next one.

Sara That'll be fun. Okay.

Caitlin Thanks, Sara. Bye bye. Okay.

Music transition by Bad Bad Hats

Caitlin You guys stay tuned for the next episode where Sara tells us we can't. No, she doesn't. She says we can freak out, but we just shouldn't do one big mistake while we're freaking out. So stay tuned to find out what not to do when you're totally freaked out. Hey, before we go, thank you so much to Kelly West, who co-produced and edited this episode. And we have many exciting things coming in season two. If you want to keep up, you can follow Sara on Twitter at Sara On the Verge. You can follow or like our Facebook page. Women on the Verge podcast and sign up for our newsletter on our website. Women on the Verge Outcome. We'll let you know what's brewing. If your partner is making you ask for money, giving you an allowance, are not letting you know about family income. This could be economic abuse.

Sara Learn more at thehotline.org, or call one 800 799 safe.

Music outro by Devmo

Devmo I know the first thing you notice is that I'm covered in gold, the flick of the wrist it could turn a hot bitch cold, to get what you want in life girl you gotta be bold. Now Imma die rich, and I know...

Caitlin This podcast contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this podcast will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.