Saturday, October 1, 2011

BACK TO THE BEGINNING

Bear markets are about cleansing the excesses of the prior bull market. Secular bear markets are about P/E compression, a move from extreme overvaluation to extreme undervaluation. The current secular bear market is now in its 11th year and in the initial phase of its third leg down.

As many of you know I expect next year to be one of the worst years in human history, at least economically speaking. Certainly on par with 1932 if not worse. This should drive one of the worst stock bear markets in history. Before this secular bear market expires we need to cleanse all of the excesses that were generated during the final bubble years leading up to the top in 2000.


I'm expecting at next year's four year cycle low, which should occur in the fall, that we will see a true secular bear market bottom. That means single-digit P/E ratios, along with a dividend yields on the S&P above 5%. I also expect this leg down will erase all of the gains during the bubble years from 1995-2000.



 However I don't think we will be quite out of the woods yet. We will probably have to endure one more nasty leg down in this secular bear market before we put in an inflation adjusted low, likely it will occur in 2016 with a final bottom slightly above the 2012 bottom. At that point we should begin a new secular bull market that I think will be driven by truly astounding discoveries made in the field of biotech and nanotechnology.

But first we have to get back to the beginning.

10 comments:

  1. Very extreme bearish outlook. I don't agree or disagree just that it will be interesting to see what happens.

    What I do agree with is that we need some sort of new economic boom based on technological advances and/or real economic demand rather than mindless money printing.

    More importnantly what are your short term outlooks on the equity markets?

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  2. I just can't see how the markets can drop this low with all the central banks easing.... it's unbelievable.

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  3. It's because printing money can't create prosperity. All it can do is create commodity inflation which eventually poisons a weak economy.

    This is why I'm deathly afraid Ben will starting printing again if the market drops much further. It will spike commodity prices right as unemployment is starting to surge, making it even harder for the masses to survive.

    Another round of QE at this point will intensify the recession to unbelievable levels. Since I'm sure this is exactly what Bernanke will do, I fully expect 2012 will be one of the worst years in human history, economically speaking.

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  4. Also keep in mind that the more the USD rises and yields drop, the more printing power he has.

    The 10 year at new lows is kind of mind boggling.

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  5. Gary,

    Earlier in the year (I don't recall the exact time) you mentioned that the stock market would not experience another event like 2008 -- a back-to-back deep bear market like you are now suggesting. What has changed?

    Also, can you provide more insight on your four-year cycle analysis? I thought the four-year cycle is due to bottom in 2014 by way of the four-year presidential cycle which last bottomed in 2010, 2006, 2002, 1998, 1994, 1990. So your timing of 2012 being the four-year cycle price bottom is different than the four-year presidential cycle?

    Lastly, any thoughts on Clif Droke? He has an interesting book about cycles, much of which comes from Kress Cycles, which imply that we are in a Hard Down Phase. This ties in with the bearish action, but I'm just trying to better understand how this fits in with your early-year remarks about not having back-to-back 2008-like events. My long-term charts lead me to believe that we could see S&P 900 once 1040 is broken. If 900 is broken, we're on our way to somewhere above 800. I'm just not sure we move below the 3/09 price low of 666 like your chart suggests.

    Thank you for the time.

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  6. I was expecting more of a normal grind lower type bear market this time. But with the problems in Europe we may indeed see a repeat of the crash scenarios from 08.

    I haven't read anything on Kress cycles so I have no intelligent comment. I use a form of cycles that was originally developed by Walter Bressert.

    If you want details about where I think we are I suggest trying the trial subscription.

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  7. I expect 2012 to be much worst. I don't trust anything they do or say. Look at Wall Street now with the protestors, that will get worst and is spreading now. Yes, more printing will be done. That's the only thing they know to do except throw money away and spend, spend, spend. They have (hopefully) only one year left and do more damage, yes they will. Hold on to what you got.

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  8. "Hold on to what you got."

    Better yet: Sell short (and own gold) and take wealth away from them. If they are going to tank our economy, you should protect yourself by maintaining or possibly improving your economic lot.

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  9. It looks like we are forming the ''A'' of the ''M-A'' pattern on the weekly chart -- if it plays out, the target would be 400-500, so I think this is a good analysis. All the toxic waste has to be cleared out of the financial system, which means some big banks and many countries will have to default and go bust. So I can easily see this scenario unfold. I will be playing the SH for the ride down & the SPY for the bear market bounces.

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  10. Toby,

    Agree with your analysis here on the longer term. It coincides with some estimates that I drew up in 2008'. So far we appear to be on track, although honestly the DOW recently overshot my original estimate by about 1000 points. We might get a nice bounce here as your forecast points.

    Although we appear to be in a stagflationary envrionment, I estimate we may end up with rampant longer-term inflation. This is purley based on the simplistic view of too many people - on a global scale, and not enough raw materials to suffice the increasing desires of these people of the emerging nations. Sorry to say, analysis is that plain and simple. Nontheless, I am not married to this stance since events can shift outcomes pretty quickly.
    Deon

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