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Source: Crestmont Research

Category: Cycles, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Secular Bull and Bear Markets in Perspective”

  1. [...] Secular Bull and Bear Markets in Perspective (The Big Picture) [...]

  2. picksjr says:

    How is the E in the P/E defined here?

    I bastardize the Shiller data and normalize reported earnings over a 5 year period. The market did get to 12x in March 2009 based on this 5 year average (showing 15x above).

    Now for the buzzkill – SPX is currently at 22.8x.

  3. actuary530 says:

    @ picksr, I don’t think defining the P/E would be useful. When the P/E is beween 10 and 20 it’s not clear what’s going on any way. The other problem it’s not transparent what effect the cost of money is having on P/E. P/E has increase from 2010-2012, but how much of this is due to falling interest rates and how much is due to increased cash flow as a result of efficiency?

  4. mad97123 says:

    Perhaps recognition of the fact that we are just now in the range where bear markets typically start is what has most strategist bearish. It seems even Wallstreet pros can see that high valuations and corporate profits built on mountains of debt are not the starting place for a new bull market.

    http://www.ritholtz.com/blog/2012/08/strategists-most-bearish-on-equities-since-1985/

  5. NoKidding says:

    Bah. Permanently high plateau.

  6. billyalex2 says:

    Yikes! So, move to cash??

  7. Gnatman says:

    That $5.1 trillion in cash being held by corporations… possibly for stock buy backs at the next bottom.

  8. Dima says:

    Thanks Barry! Kind of looks like the current bread market is rhyming with the 1901-1920 bear market. Especially if you look at the S&P chart for 1900-1912 versus 1998-20-12.

  9. Dima says:

    Oops – Bear market – not bread. Of course bread might be what we’re in line for if this goes on for another 8 years.

  10. kek says:

    on October 9, 2012, the market will mark the ten year anniversary of the botton and deflating of the S&P index fund/dot-com bubble. Since that time, the Russell & Naz have more than doubled, and the S&P & D0w, excluding dividends have compounded 70%+. If one had avoided the new paradigm BS from 1998-2000, and stayed away from GE selling at 40x, etc, the real life returns would not be that bad.

    Doing research from 66-82, one can also find good returns from paying attention to valuations (no Nifty 50 nonsense), and buying shares of dividend paying companies.

  11. perpetual_neophyte says:

    Is it worth noting that the US and other global central banks were very different in their operational abilities and processes for every one of those previous secular bears (other than the last couple of years of the ’66 – ’81)? Does that make “this time (sorta) different?”

  12. eliz says:

    So what happened in and around 1996?

    Might Robert Rubin as Secretary of the Treasury under Bill Clinton be a clue to the puzzle?

    Only to be followed by Larry Summers in 1999.

    Geesh.

  13. redcharlie says:

    If 2000 until the present is one long “secular bear”, then why not 1929 thru 1941?

    Granted, conditions did improve initially under FDR, but then he tried to balance the budget prematurely in 1937 and we wound up back in recession. But if you regard 1933-1936 as a “bull”, why not also 2002-2006, another short period of economic gain?

    Just seems a little inconsistent, that’s all.

  14. Crestmont says:

    redcharlie, the driver of secular stock market cycles is the inflation rate–toward or away from price stability. That causes significant changes in the level of P/E, the multiplier of earnings that causes above- and below-average return periods. Some analysts do combine the secular periods from the late ‘20s to the early ‘40s, but that masks the fundamentals of underlying cycles. For the ’20s-’40s, the first cycle was a decline into deflation (bear), then the return to price stability (bull), then the upward trend of inflation (bear). Please visit the Crestmont website for more articles and charts. P.S. picksjr, the E & P/E are year-end values using the method popularized by Shiller (Year-end P/E10).

  15. Iamthe50percent says:

    It might be instructive to plot P/E times the Treasury interest rate. This would give a ratio of bond yield to stock earnings that I suspect fluctuates with the bull-bear cycle, whether as leading, or trailing, or coincident, I couldn’t say.

  16. Futuredome says:

    “So what happened in and around 1996?”

    Innovation wave blowing up profits into the stock market. Once that ended, the pullback from the stock market happened and then the herd flew into real estate.

    The 1920′s on the otherhand, was the opposite. The Innovation wave happened in the 1910′s and then everybody flew into Stocks after the fact creating the bubble marking the end of the industrial revolution. No surprise in 29 when the bubble burst, the economy cratered and their was bank failure after bank failure. The engine of capitalism had died.

  17. eliz says:

    @ Futuredome – While you are correct about the stock market bubble and then the real estate bubble, I assert that banking and finance changes (e.g. repeal of Glass-Steagall) allowed the “phantom wealth” (credit to David Korten for that term) economy to expand exponentially. Clinton’s ties with with financial sector – as evidenced by his having selected Robert Rubin as his Treasury Secretary, were instrumental in those changes. Did you know Rubin and Jon Corzine were at GS together. Is it any wonder the current administration is protecting Corzine from prosecution and/or prison after stealing over a billion dollars from his customers? As much as the Republicans are an atrocity, the Democrats have their own demons. It will take “exorcisms” before either is suited to represent John/Joan Q. Citizen.

  18. eliz says:

    @ Futuredome – While you are correct about the stock market bubble and then the real estate bubble, I assert that banking and finance changes (e.g. repeal of Glass-Steagall) allowed the “phantom wealth” (credit to David Korten for that term) economy to expand exponentially.

    Clinton’s ties with with financial sector – as evidenced by his having selected Robert Rubin as his Treasury Secretary, were instrumental in those changes.

    Did you know Rubin and Jon Corzine were at GS together. Is it any wonder the current administration is protecting Corzine from prosecution and/or prison after stealing over a billion dollars from his customers?

    As much as the Republicans are an atrocity, the Democrats have their own demons. It will take “exorcisms” before either is suited to represent John/Joan Q. Citizen.

  19. [...] continue to be a reasonably good investment class, at least until stocks’ P/E ratios reach “end of bear market / start of bull market” territory.  After all, if years of possible manipulation can’t stop a five-fold rise, how [...]