That Dreaded Year: 1994

That dreaded year, 1994, is coming back to everyone who has been at this game for a while. That was a year in which very few people could make any money in the market. It was a year when a lot of really smart people got knocked out of the business for good. It was a frustrating, intimidating year where very little made sense and people were losing fortunes on individual trades.

I remember that year well. Karen and I had been trading out of our country place on some Thursdays and every Friday. Until the middle of the year. It was just too brutal for anyone but hardcore followers. I was being too much of a dilettante trying to trade from a garden shed.

We had come in long a lot of small-cap value, including some savings and loans. But in 1994, the Fed was relentless in its pursuit of higher interest rates. They hiked rates six times, some of them the big 50 b.p., moves that caused a real shudder.

In 1994, like 2000, the Fed had fallen behind the curve. It had pumped the economy up because of the savings and loan disaster and the need to provide liquidity to keep the banking system afloat. Yes, it was that bad. Last year the Fed pumped because of Y2K fears. Now, as then, the Fed has been too easy. Now, as then, we have to pay for it.

The bottom that year came right about now -- give or take a month -- despite additional rate hikes in the fall. I think understanding that year is incredibly instrumental for understanding this one. Which is why all week I'll devote pieces to remembering 1994, so we can apply the lessons learned in that brutal year.

You'll want to stay close to this one. I remember that year like it was yesterday. Now it just feels like yesterday.