The 90’s were bad years for Bear fans. Measured by the Dow Jones Index, they had only one victory, a small 4.34 percent index drop in 1990, against 9 defeats. By the S&P 500 Index, 1994 was a Bear win as well, but by a wimpy 1.54 percent only.

This is an extraordinary record. In no other decade in the 20th century, by the Dow Jones Index measure, did the Bulls win by more than 8-2 (there was no 20th century decade with net Bear wins, though the Bears split the 1930’s 5-5). By the end of the 1990’s, the boys in black fur were looking pretty bedraggled, having been resoundingly dinged the last five years in a row.

2000 has been a much better Bear year. Tuesday morning, by the Dow Jones Index, the Bears were beating the Bulls by 7.49 percent; by the S&P 500 Index by 11.11 percent; and by the NASDAQ composite index the Bears won by a resounding 38.15 percent, a big win by any historical standards, indeed the biggest in the history of the NASDAQ index, which stretches back only to 1985. (The S&P Index goes back to 1926, the Dow and its predecessors to 1896.)

The last few days of the year could produce some Bull yardage, but there are no signs whatever that this will change what will go into the record books as a solid Bear win, the first such solid win since 1981 (down 9.23 percent on the Dow, 9.73 percent on the S&P 500).

The question for 2001 is: Can the Bears repeat, and, more crucially, can this be one of the rare Bear Super Bowl years, about which Bear fans will tell their grandchildren?

Even Bear repeats are uncommon; the last was 1973-1974. Before that, 1940-1941, 1929-1930-’31-’32 and 1913-1914, were the only Bear repeats since 1900. If the Bears repeat in 2001, it will thus be for only the fifth time in just over a century.

Big Bear wins, ones which are more than just solid victories but could qualify as a “Super Bowl” victory, are equally rare. The last was in 1974, when the Bears won by 29.72 percent on the S&P 500 Index and 27.57 percent on the Dow. This was the only 25 percent drop in either Index since 1950, indeed the only 20 percent drop since 1950. That in itself is significant; if we define a Bear Super Bowl as a 25 percent drop in the S&P 500 Index and the Dow Index, a near miss is fairly unlikely.

Before 1950, Bear Super Bowls were a little more common: The Dow was down 32.82 percent in 1937, 52.67 percent in 1931, 33.77 percent in 1930 (1929 and 1932 were both solid Bear wins but not Super Bowls), 32.90 percent in 1920, 30.72 percent in 1914 and 37.73 percent in 1907.

It is fair to say, therefore, that with six Bear Super Bowls in 50 years, the stock market as a whole was much more volatile before 1950, with the Dow Jones Index behaving much more like the NASDAQ composite index does today.

A Bear Super Bowl victory in 2001, a 25 percent drop that took the Dow Jones Index below 8000 and the S&P 500 Index below 975, would thus be an extraordinary event — on the face of it very unlikely, such as has happened only once in the last 50 years.

So what characteristics of the current situation lead one to believe it is even possible?

First, there is political uncertainty, with weakened presidential leadership. In 1974, Nixon was facing impeachment, and ended by resigning. In 1931, Hoover had just been repudiated in the 1930 mid-term elections, a rarer event then than now, and was coming to look the angry, ineffectual figure we remember. In 1920, Wilson’s stroke had left the presidency paralyzed, and in 1914, World War I threw U.S. and world political life into confusion.

The other three Bear Super Bowl wins don’t follow this pattern. In 1930, Hoover still looked good, and the Roosevelts in 1907 and 1937 were strong and effective presidents. Thus four out of seven Bear Super Bowls coincide with periods of weak or low-legitimacy government.

Of course, with the disputed and long drawn out election, that is just what we may be facing now, though it is not clear how it will play out in practice. Probably the key variable will be the success of the new Cabinet in meeting challenges. If Colin Powell at the State Department and Paul O’Neill at the Treasury Department, in particular, turn out to be ill-equipped to face the challenges they meet, it may be a very good Bear year indeed.

Even if the current growth slowdown turns into a recession, it does not necessarily mean a Bear Super Bowl. The early portions of recessions tend not to be as bad for the stock market as the later ones; with the inevitable lag in economic data reporting. It is generally not apparent until afterwards that the recession in progress is a deep one. Thus 1973 and 1929 or 1930 were not as big for the Bears as 1974 and 1931. The exception to this, however, is the short but sharp recession, such as occurred in 1907, 1920 and 1937, all three of which brought Bear Super Bowls.

This type of recession is, however, less likely with modern techniques of monetary management. The Fed will tend to loosen interest rates going into the recession, which will dampen a short recession, at the expense, if the recession turns out to be prolonged, of leaving the Fed with no tools to fight a real slump (as turned out to be the problem in 1931, and in Japan in the 1990s). It is thus possible that if the recession is short, the Fed may prevent a Bear Super Bowl, while if it is deep, the descent into it may be prolonged, preventing a single Bear Super Bowl in 2001, but leading either to a Bear Super Bowl in 2002 or a series of Bear wins, like 1929-1932.

One factor which has not played much of a role in the past is stock price overvaluation. Even after 1929, the best Bear win was not 1930, when stocks were still overvalued, but 1931, when overvaluation was giving place to despair. Similarly, in 1969-1974 the year of overvaluation, 1969, was nothing like as bad as the year of despair, 1974. Earlier, 1920 and 1907 clearly began in overvaluation, while 1914 and 1937 didn’t.

This time, by all historical standards, 2001 is beginning at a time of massive stock price overvaluation, by as much as 100 percent from the long term average valuation, and many of the rationales for such overpricing which were trotted out during 1997-2000 now seem distinctly threadbare.

Valuations in the New Economy have been slashed since March 2000, but they still remain extreme, while Old Economy valuations have barely declined from their highs. To the extent that, as in retailing, the New Economy merely replaces the old, there should be a decline in Old Economy valuations approximately reflecting those created in the New Economy in the same sector. This has not happened.

As with the economy as a whole, it is possible that an excessively lax monetary policy by the Fed may delay the day of reckoning beyond 2001, preventing a Bear Super Bowl next year, but the valuation correction must surely happen sometime in the next few years, and it seems difficult to believe that it can take place without any Bear Super Bowls.

Since there has been only one Bear Super Bowl in the last 50 years, a naïve estimate would put its probability in 2001 at 2 percent. It is clearly higher than that. While by no means certain, we would put the probability of a Bear Super Bowl in 2001, a drop in Dow/S&P indices of more than 25 percent, at 30-50 percent, and the probability of a Bear Super Bowl in 2001 or 2002 at 60-70 percent.

It may appear that the Bear’s Lair has been engaging in unseemly gloating herein, or even in precipitating a bear market. This is not the case. The true precipitators of the coming economic recession and bear market are those who allowed the economy to run wild in 1995-2000, stock market valuations to stretch far beyond what could reasonably be supported, the trade deficit to climb to $400 billion per annum, and the savings rate to turn negative for two years in a row.

What is more, the true danger is not a Bear Super Bowl, but a long series of Bear wins, so that, for the first time ever, the decade of 2000-2009 has more Bear wins than Bull wins, rather than being a split like the 1930s. If, having allowed the bull market to reach to such unsustainable levels, the Fed tries too aggressively to cushion the market on the downside that, by the example of Japan, is what will happen (by the Nikkei 225 Index, the Japanese Bears won the 1990s 7-3), it will be far more damaging to the lives of all Americans, and indeed all world citizens, than any short term Bear triumph.

The big game of 2001 is about to begin. The two teams, Bears sleek and confident in their black fur, Bulls hesitant, with some showing signs of damaged horns and flesh wounds, are on the field. The Bull cheerleaders, in white polar bear fur bikinis, with their fluffy fur pom-poms of overheated IPOs, are far less noisy and ebullient than in past years, while the Bear cheerleaders, in black leather hotpants with rawhide whips of missed earnings forecasts to scourge stock prices, look tanned and menacing.

The whistle, ladies and gentlemen, is about to blow; place your bets now!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.