Many value investors say stocks are below fair value for the first time in two decades, writes Proinsias O'Mahony

LAST WEEK, a 36-year-old Brazilian futures trader shot himself on the floor of the Bovespa stock exchange. An extreme case, no doubt, although investors the world over have been shook by the chaotic financial markets.

So how volatile have these markets been? And is this just another run-of-the-mill bear market or do the oft-made comparisons with 1929 stack up?

The current bear has some way to go before it matches the savage declines seen between 1929 and 1932, when US markets sank by 86 per cent.

Having suffered a peak-to-trough decline of 52 per cent since last October, it does mark the most severe downturn since that period, however.

As for volatility, Goldman Sachs recently said the current period is soon set to exceed the record swings seen in 1929. "During 1929, realised volatility peaked at 68 per cent," Goldman said, referring to one gauge of market moves.

Realised volatility is now 66 per cent, and "we will likely pass that number in short order", making the current market "the highest sustained volatility environment in SP 500 history".

Over the last 50 days, the SP 500 has been averaging daily moves of almost 4 per cent. That's greater than any period in history and over 10 times the average daily change of 0.33 per cent seen 18 months ago.

Average daily moves are much larger than average weekly moves between 2003 and 2007.

Rapid as market declines have been, it hasn't been all one-way traffic. The financial sector's 10 worst ever days have all come in 2008, but so too have nine of its 10 best ever days.

Last week saw the SP 500 suffer consecutive declines of 6 per cent - the first time that happened since 1933. It was followed by two consecutive rises of more than 6 per cent - again, something not seen since 1933.

Between 1940 and 1986, the index never once rose by such an amount in a single day.

The massive volatility means that even the biggest investors are timing their purchases. Block orders - that is, transactions of 10,000 shares or more - have dropped in half since 2006. Instead, smaller orders are in fashion as investors tread more cautiously.

As for the extent of the declines, markets are also setting records. After dropping to an 11-year low last week, the SP 500 was on track for its worst year since 1872. It was trading approximately 34 per cent below its 200-day moving average of late, something that has not been seen since the 1930s.

Homebuilder stocks had declined by 85 per cent, a greater crash than that endured by technology stocks after the dotcom bubble burst.

All sectors have been brutalised, however. The 2000-2002 bear market suffered a similar decline (almost 50 per cent) but more than one in four stocks rose during that period. Barely 1 per cent of US stocks have risen since the SP 500 peaked last year.

Internationally, the situation is similar. Just 11 stocks in Bloomberg's Europe 500 have risen this year. Not a single stock in the main Chinese and Indian stock exchanges is up. Of the 663 shares in the FTSE all-shares index, only 23 are up.

The current bear does not yet match the 1972-74 UK bear market, however, when the FTSE fell by 77 per cent in real terms. The Iseq's well-publicised woes mean that it is on track for its worst year since records began in 1782.

Globally, stocks have halved this year. Similar declines have been seen on four occasions this century - after the first and second World Wars, in 1973-74 and between 2000 and 2002. Many other bear markets - usually of a shorter and shallower variety - have come and gone.

The gravity of the declines does at least mean that global stocks finally appear cheap. Many value investors say that stocks are below fair value for the first time in two decades.

One such investor, John Hussman, recently said that the US market was in the lowest 20 per cent of all historical valuations. The massive bull market between 1982 and 2000 saw stocks trading at elevated levels, with investors like Warren Buffett and Jeremy Grantham correctly pronouncing that stocks were consequently set up for a decade of underperformance.

Both are now positive, with Buffett saying last month that equities will "almost certainly outperform cash over the next decade, probably by a substantial degree".

History shows us that so-called "lost decades" are not uncommon in the market.

Thankfully, periods of obvious underperformance tend to be followed by periods of out-performance. That's not a guarantee - it took US markets 25 years to regain their 1929 high.

However, strong eras are often not far away when widespread pessimism causes investors to flee en masse. Think Germany after hyperinflation in 1923, Japan after the devastation of war in 1946 or BusinessWeek's front cover announcement of the "death of equities" in 1979, after a decade of stagnation.

Société Générale analyst James Montier is another long-term bear who has turned bullish of late. "The road to revulsion ends in an investment nirvana," Montier said recently - "unambiguously cheap assets".

Even if the bulls are right, however, it's unlikely to be a comfortable passage. With market volatility at an all-time high, the stomach-churning roller coaster ride looks set to continue for some time.