I hate seeing myself misquoted, misinterpreted, or just misunderstood.My prior explanations (see this and this) about how Secular Bear Markets reach their final denouement was apparently too subtle.

Since nuance apparently gets lost on some people, so let me make this as clear as possible:

1. A Secular Bear Market began in March 2000.

2. I DO NOT KNOW IF ITS OVER. It could be, but I suspect it is not. I do think that it is in the process of coming to an end, and that’s why I used the baseball metaphor of in the 7th inning.

Note: “Coming to an end” does not mean over. I erroneously assumed most people would understand what “in the 7th inning” meant — to those folks overseas, an American game of baseball has 9 innings. The 7th inning means its late in the game, but there are still a few innings left to be played.

3. If it has not already ended, then the bear market is entering its 14th year.

4. We don’t have a lot of examples of Secular Bear Markets — see the chart below — but it is a decidedly small sample set of only 4 over the past century.

5. These secular bears have all lasted between 12-22 years.

6. Based upon this small history, even if this bear runs 22 years, we are closer to the end than the beginning.

7. The FOMC policies of QE/ZIRP are the wild cards. I believe we would have had at least one 20-30% correction but for the last 2 QEs. That washout would have been our 1979-81, and it could have helped set the stage for the end of the Secular Bear.

8. Normally, we should be seeing lower P/Es and even lower interest in Equities. However, we once again look at the actions of the Fed as a complicating factor. This makes interpreting where we are in the cycle, a challenge under normal circumstances, that much more difficult.

9. I don’t know how to interpret the secular bear metrics in light of the Fed’s active intervention in the markets. It is a case of first impression.

10. I do not believe the US has followed Japan into a 30 year deflationary period. They are just too dissimilar to the USA — their Keiretsu system is different than our corporate sector, their demographics, their unified, non-diverse culture, their export driven economy, even their risk averse approach to entrepreneurship.

I hope this clarifies things for anyone who may have misinterpreted what I said.

Please leave whatever questions or comments you have below.

Dow Jones Industrial Average 1900- present (log scale, monthly)
Click for ginormous chart

Source: Monthly Chart Portfolio, Merrill Lynch Market Analysis, November 4, 2011


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.

66 Responses to “Explaining My Position on Secular Bear Markets”

  1. louis says:

    Lot of shit can happen in the 8th and 9th inning.

  2. dctodd27 says:

    Your main hang-up seems to be that the Fed is the wild card here, that its endless printing may serve as a “floor” under the market. Doesn’t that line of thought fall into the same camp as the “internet is the new economy” and “housing wont/cant go down” rationales that we saw over the last 14 years?


    BR: * sigh *

    No, that is not what I wrote — the fed is the wildcard and what they are doing is making interpreting the market even more difficult., They are disrupting the inputs/signals/metrcis.

  3. RW says:

    Among the many oddities typical to late 20th and early 21st century discourse is the decline in reading comprehension accompanied by an apparently irresistible desire to comment regardless.

    “Better to remain silent and be thought a fool than to speak out and remove all doubt.” -Abraham Lincoln

    PS: a very minor quibble: judging by the slow roll-over that began in 1998 — the “stealth bear” — involving virtually everything other tech and mega-caps I’d argue the secular bear is a couple years older.

  4. Super-Anon says:

    It’s in the nature of markets to examine their past behavior and then do something completely different.

  5. Mike in Nola says:

    Since you said what I think (except maybe about the Japan comparison, which might still be valid), you must be one smart dude :)

    My pet theory is that the economy is some sort of driven harmonic oscillator accounting for its periodic properties a la Kondratiev, but with so many inputs that it won’t be understood in even a general way until the distant future when a different economic system is in place and then it won’t matter anyway. Fed actions are just more driving forces that could affect both the amplitude and periodicity, e.g creating bubbles is the effect on amplitude and stretching out the economic cycle may be the effect of ZIRP and QE by not letting conditions clear. While my theory doesn’t provide a great deal in the way of predictive power, I’m just as likely to be right as any economist.

  6. Mike in Nola says:

    Forgot to mention that I think louis is onto something.

  7. Frilton Miedman says:

    On #7, isn’t FOMC reactionary vs causal?

    I suspect the avg 17 year secular periods are reflective of the length of time it takes for fiscal/tax/political policy change. (in part, the time it takes the voting public to realize what’s BS)

    If you pull news headlines from the 1930′s off Google archives, you’d think you were reading today’s headlines, replete with republican accusations of Socialism.

    Paul Krugman, on Chris Hays yesterday made a statement that was dead on, he stated that many on the right are ignorant to history, citing economic policy that was debunked in the 1950′s without realizing it.

    I only see the FOMC as reactionary to decades of one sided economic policy that leaves us little option other than freeing up consumer buying power with dirt cheap mortgage rates while money supply inverse to velocity is so out of whack. (disparity)

    Feel free to fault me, all ears here.

  8. crutcher says:

    That post was helpful in clarifying your views. I still think the Japanese experience speaks more to the American situation than you are allowing for. You note repeatedly that central bank intervention here at the zero bound is the big wild card, but Japan shows that if the central bank refuses to liquidate bad debt but montetises too slowly to reliquify the system with moderate inflation the deleveraging process can be indefinite. The Fed is openly saying that this is the middle road they are trying to walk, as is the ECB. Could some new innovation make this picture of long term stagnation obsolete? Sure, but it has to rival the internet, or the steam train.

    N.B. It’s true that Japan’s demographics are bad but I would counter that its current account has been pretty good all told.

  9. leeward says:

    since the measuring value of the dollar is changing, is there any Practical Value (in longer time horizons) in looking at markets as measured by other basic items ?

  10. bdw says:

    In the theme of history, when Obama “loses” Iran and it gets nukes (like Truman “lost” China) the defense cuts will be hung around Hagel and the administration’s neck. Robots will be built here for national security purposes to attack over there and occasionally have problems with battery fires. The 2-out, bottom of the 9th outside curve for the secular bear will be the up tick from QE/ZIRP in 400 days.

  11. PeterR says:

    The Big Churn (1997-2021) is about two-thirds complete IMO.


    BR: In a nine inning game, first 2/3rds are innings 1-6.

  12. bear_in_mind says:

    @Barry: Thanks for the points of clarification, but I think most of your regular readers understood what you meant. As for your baseball “innings” metaphor, Nature Bats Last. Always. She’s not likely to be a prime factor on when the secular bear cycle concludes, but then again, who knows.

    @Frilton: “…many on the Right are ignorant to history”?! Surely you jest! How could anyone seriously suggest that a political party that fights tooth-and-nail to defend Creationism is ignorant to history?

  13. danm says:

    I suspect the avg 17 year secular periods are reflective of the length of time it takes for fiscal/tax/political policy change. (in part, the time it takes the voting public to realize what’s BS.

    Most of the decision makers with clout and money are over 50. 17 years is the amount of time we have to wait until time does its ravages and gets them out of our hair.

  14. ShakyShot says:

    Yes to BR and Mike. In other words, did Fed action (1) prevent or (2) just delay the very low P/E reached in previous secular bear markets?

    If the very low P/E has been successfully prevented, does that mean the secular bear will be extended in time (worked-off in additional time rather than P/E, similar to an “overbought” market worked off in time)?

    Or is it more likely that unintended consequences will eventually “surprise” the Fed and lead to the very low P/E? Based only on the Fed’s prior demonstrated foresight, I have to guess we are yet to see the lowest P/E of this secular bear.

  15. carterb says:

    Looks like every other secular bear has ended with a shiller pe of around 10, and we’re sitting at about 23. It seems unlikely that a new secular bull will begin at current valuation levels. Do you think something has fundamentally changed that is going to permanently raise valuation levels?


    BR: Heh heh The Shiller P/E hadn’t been invented yet during other bear markets!

  16. Fred C Dobbs says:

    Thanks for being honest. I remember Leon Levy being continually pestered by people asking him where he thought the market would go, and he always said he operated on the assumption that neither he nor anyone else knew. I am saddened by the fact that the chart fails to differentiate between the periods the US was going from debtor nation to creditor nation to debtor nation etc. which would stimulate a thoughtful person to realize the chart means nothing, comparing chalk with cheese etc. The fact is the SEC, rating agencies, analysts, quants, brokers, salesmen are all working together to get the dumb driven sheep to buy stuff Wall Street doesn’t want.

  17. nofoulsontheplayground says:

    I think this secular bear market is best shown on an inflation adjusted (Real) S&P 500 chart. In that chart we’d see the price action off the 2000 highs as a long, bullish flag. The move off the 2009 lows looks like the final up move of the flag, and a final leg down in 2014 to finish the flag would fit the pattern nicely.

    Of course, this would suggest the 17-1/2 year cycle low due around 2017 would likely be a re-test of a breakout of the flag rather than a new, lower low.

    I also think it is informative to use the real price low for the bear market low rather than the nominal price low.

    As for lower P/E’s, I think the Rule of 20 does a nice job explaining why we’re not seeing these. Denis Oullet is a genius for coining this simple, but effective tool.

  18. Phil says:

    In the chart you published the big negative excursions you have identified with the red arrows seem to happen exactly in the middle of those secular markets. Maybe that is a clue to how close we are to the end of this one.

  19. Joe_in_Indiana says:

    Thanks for clarifying Barry.

    Charles Biderman just posted a video today on how he has gotten it wrong since 2009 because of Fed Intervention–QE. http://trimtabs.com/blog/2013/02/11/supply-and-demand-always-works-in-equities/

    Distortion of the stock market versus the economy has brought untold wrong investments for many.

    The failure to clear the “deadwood” has made this only the 7th inning rather than the 9th.

  20. hue says:

    So it’s the 7th inning stretch …

    Take me out to the Big Board
    Take me out with skynet
    Buy me some Apple and Facecrack
    I don’t care if the bubble never pops
    Let me root, root, root for some QE,
    If the markets go down it’s a shame.
    For it’s one, two, three strikes, you’re out,
    Unless you’re Too Big To Fail

    Bring in the closer, Barry Ritholtz,
    or is he the set up man?

  21. The Window Washer says:

    You’ve done a great job on bear market history the last few years. It’s been great having that part of cycle data delivered every few months. (Now if Invictus would just keep up on the FRB Z.1…..)
    After trench warfare for the last few years I had to make a call about what direction to take my business last year.
    Macro call not a market call but the market is a huge component. My clients are HNW/SHNW.
    I made the call that within 18 months one way or the other of Jan 1st 2016 things will “normalize”.
    There are only 2 variables left employment then the end of Fed QEzing which obviously comes after.
    I had a meeting on Friday were someone was talking all kinds of Obamacare, Fed, Congress, FICA, Taxes….blah blah blah….uncertainty!!!
    At this point it’s the slowest pitch you’ll ever see if you fuck it up it’s your own fault.

    Make a call.
    Pour yourself 4 finger of wiskey and take a walk around the block drinking it.

  22. CharlesII says:

    A comment and a question.

    The whole idea that a market has to wash out after irrational exuberance is not defensible. Yes, it is very good for market participants to re-learn the proposition that one can lose money in the market. Losing money engenders anger that motivates the exposure of speculation and fraud. The result may be reforms that discourage speculation in favor of genuine investment. And washouts are wonderful for those who have some reserves, because they create great buying opportunities. But there is nothing magic about the washout. In a perfectly efficient market, there never will be a washout, because people will anticipate it.

    So, question: I was looking at PE and the Shiller PE over at multpl.com. By the first measure, the market is 20% overvalued. By the latter, about 40%. So, the question is, which is the better measure? It seems to me that overvaluation measured by Shiller may be too high because corporate profits were so depressed, while overvaluation measured by current earnings may be too low because earnings will decline with the global slowdown/tax changes/general congressional idiocy over the sequester. So, maybe the true overvaluation is between the two estimates. Some of the overvaluation is irrational exuberance, some is the Fed Effect. The Fed is not going anywhere in the near term.

    How does TBP estimate the proportion of overvaluation due to irrational exuberance/the Fed Effect?

  23. perfectly efficient market?


  24. rd says:

    I think ZIRP and QE are not finished with their impacts, many of which are likely to be unintended and unpleasant. One thing that I think is going to occur due to the very extended period of Fed intervention is that local and state pension funds are going to run into serious funding difficulties once they have to really start reducing their expected future returns because of the very low yield over a long time in their bond portfolios. This will in turn continue to drive taxes up and continue the trend of reducing local and state govt employment. Once the baby boom generation has retired from government service over the next decade, we will find completely restructured local and state governments.

    Ben Bernanke will likely have been far more effective at restructuring govenrment than the Tea Party. The real trigger that will probably cause cascading major problems in the local and state governments will be the next big downwave in the stock market so that pension fund bond yields will be paltry while their asset base will have been slashed by the stock market drop.

    I don’t think this thing will be over until Shiller’s CAPE is single digits and the vast majority of the baby boom generation has retired, including Congress. I think that the typical 12 to 22 year length of these secular bears is the time it takes for a major social mind-set shift and a complete changing of the guard of the country’s political and corporate leadership.

  25. Frilton Miedman says:

    I can’t quite bring myself to believe P/E compression is a necessity to mark the end of a secular bear, not in and of itself.

    Correlation isn’t causation – I could potentially make the argument that past P/E levels weren’t the motivator for a market rebound, but more the motivator for stimulative policy change that led to rebound.

    My point, we saw a major surprise in market direction when the fiscal cliff was averted – if we see reasonable compromise in the next two weeks over sequestration cuts, we may well see the pivotal end of the secular bear.

  26. theexpertisin says:

    The chart highlights the century of American exceptionalism and economic dominance. I suspect the 20th century rear view mirror will be poor predictive tool for our 21st century chartists.

  27. mad97123 says:

    You must admit that Ma & Pa have a right to be Dazed & Confused when the best can get this whip-sawed.


    The S&P might be 1,700 or 850 in 2015. So much for efficient markets.

  28. socaljoe says:

    Two thoughts come to mind…

    First, how much confidence do you have in making a prediction based on a data set of three previous secular bear markets? A sample size of three seems statistically too insignificant to draw conclusions.

    Second, what is the meaning of secular bear market or bull market without taking into account inflation. For example, what if the market continues to rise in nominal terms, but declines in real terms? The averages go up, but investors loose money. Is that a new secular bull market or a continuation of the secular bear market?

    If we chose to inflate away the burden of our debts, this is a possible outcome.

    In the extreme, nominal stock returns in Weimar Germany were astronomical, but most shareholders were wiped out in real terms.

  29. Angryman1 says:

    You worry to much about the FED. It is more irrevelant than you would understand. Without the bailout directed by public officials, the US would have had 100% unemployment, 0 GDP and 0 point on the Dow.

    Why? All laws. The counterparty destruction would have killed the US economy and they bailed out the whole thing in panic response. That was a big reason why the recession ended up being small in total.

    Then passed Dodd-Frank as resolution-authority in admin. bankruptcy. The “size” of a secular bear depends on innovation and solving the energy crunch. It could go on longer than 22 years or it may end in 5 years.

  30. Angryman1 says:

    “One thing that I think is going to occur due to the very extended period of Fed intervention is that local and state pension funds are going to run into serious funding difficulties once they have to really start reducing their expected future returns because of the very low yield over a long time in their bond portfolios”

    Wrong on all accounts. You got it backwards. FED intervention is boosting local and state pensions because it is returns to higher yields on long bond portfolio’s rise when the FED intervenes. This lowers leverage and raises yields. We saw this in a small way after the last “intervention”. Now they hope it builds into the year continuing to raise yields.

  31. [...] Barry explains and clarifies the secular bear market thesis.  (TBP) [...]

  32. decius says:

    “I think that the typical 12 to 22 year length of these secular bears is the time it takes for a major social mind-set shift and a complete changing of the guard of the country’s political and corporate leadership.”

    Right – so what are the behavioral characteristics of this generation of leaders that contributed to the current crisis and need to be abated before we can see some progress? What is it that ties the dot com crisis and the housing crisis together? Rampant speculation because of a belief in easy m0ney on the one hand and on the other hand a willingness to IPO half baked companies or sell misrated CDOs to those suckers who believe it, all operating within a laissez-faire regulatory framework created by people who are profiting off the nonsense and those who hold the starry eyed belief that human nature produces desirable results regardless of the context.

    Have we learned our lesson now? Are the remaining ~7 years of this crisis just a period of time where we slowly work off the excesses of the turn of the century, until the economy is freed of its debts and imbalances to the point where it can start functioning in a normal way again? Or we all just looking for the next score?

    How much energy are policy makers putting into how to create support for things that produce real long term economic growth as opposed to how to create support for more quick money?

  33. david_12321 says:

    Your accepting fed intervention as the norm? Party on? Saved by the fed buying bonds and backing near zero rate mortgages? It’s not really a bear or bull market. It’s a bernake market. Fueled by every increasing permanently declining in value script. This is no longer a free open market.


    BR: I wrote:

    “The FOMC policies of QE/ZIRP are wild cards.”
    “Normally, we should be seeing . . . However, we once again look at the actions of the Fed as a complicating factor.
    “a challenge under normal circumstances, that much more difficult.”
    “Fed’s active intervention in the markets.”
    “A case of first impression.”

    How on earth do you get from that to “accepting fed intervention as the norm?”

    You are seriously projecting, dude. . .

  34. danm says:

    The whole idea that a market has to wash out after irrational exuberance is not defensible. Yes, it is very good for market participants to re-learn the proposition that one can lose money in the market.

    You bring up some good points. However, there has been no learning. Those with the money are pulling the strings and have more wealth than what they had before the crisis. It’s the status quo.

    The concentration of wealth is still increasing and the next ones to get squeezed are the top 5-15%.

    If we want to see change, the top 5-15% will need to fight… right now they are mostly over 50, too set in their ways, thinking they’ve got it made. Are we really seeing the top 5-15% creating new businesses or more interested in selling it at top bucks to a young one or to a private equity fund?

    The biggest attraction out there right now is not trade but financial engineering.

  35. mcaldwell says:

    Thanks for the clarification, Barry. As regards to statistical significance I believe you began your analysis
    by pointing out that a sample size of 3 insures lack of statistical significance. One note.. The 1999 Buffet speech you cited in your daily read may be relevant. Before the end, the Fed can be expected to reverse course and raise yields. This will cause bond prices to drop — an almost mathematical certainty. That should cause stock prices to drop in competition. This may result in a few more innings contrary to the “great rotation” theory.
    I surely don’t understand markets well enough to be able to predict them and I get the feeling that your clarification is merely a statement that the bear market will be over when it’s over and we can’t say when that will be. That’s not a very helpful prediction, but it may be the best we can do.

  36. danm says:

    I believe that public defined benefit plans should get killed and should all be converted to DC. It would force everyone to live within their means.

    These are probably the biggest culprit in the screwing up of our financial system. The bailouts after the crisis were essentially done to bail them out.

    These create huge pools of funds that are ripe for the raiding and the total misallocation of funds.

    These big pools of money are helping perpetuate the fraud and corruption on Wall Street…. most of their money is made off these big pools of money.

    If the money disappears over a couple of decades, who cares? Just print it! So government ends up paying twice if not more.

    If it weren’t for all these big pools of money, maybe there would be more businesses in the US instead of China.

  37. [...] Barry Ritholtz: explaining my position on secular bear markets (TBP) [...]

  38. Moss says:

    It seems to me that the Fed has explicitly endorsed and supported the Wealth Effect syndrome as a proxy for economic vitality. QE and all the other support mechanisms are meant to put a floor under the Stock Market until such a time when employment does it organically.

    Japan is actually using the same end, higher stock market, as a goal.

  39. dctodd27 says:

    First of all, let me say thank you for actually reading these comments and taking the time to respond. However, I don’t think I’m putting words in your mouth here. When you say that we would have had a 20-30% correction if not for the the last 2 QEs, doesn’t that mean that your interpretation is that the Fed (at least temporarily) has put a floor under this market? Regardless, I suppose my point is that market participants’ faith in the Fed is just as misguided as their faith in the dotcoms and housing over the last decade or so. In the short-term it may disrupt signals/inputs but we’re talking secular market cycles here – very long term stuff,and I think in the end valuation trumps everything, including the Fed. You’re right when you say we’re closer to the end than the beginning but we’ve still got a ways to go.


    BR: What is with you and the “floor” ? Those are your words, not mine.

    I did not use the word “floor” on purpose. It seems too permanent. What I said the Fed intervened and likely prevented a 20-30%$ correction. These are 2 very different things.

  40. lo574 says:

    Barry sometimes you need to wave your hands, stand up and clarify. Great job and I couldn’t agree more. What p/e multiple is justified, whether the Fed is right/wrong or whether we’ve learned our lesson is debatable and useless to me. Bottomline I do not see credit evaporating or 401k money flows stopping. People continue to rebuild their retirement nest eggs and money continues to flow in search of yield. Economic data in the U.S. continues to improve (albeit slowly) and deleveraging chugs on worldwide. I don’t think we have any reference whatsoever for such an enormous global crisis therefore I can only rely on the econ data which is better than it was. I notice no one above mentions if they’ve been long the market, sitting fully in bonds or hoarding their cash on the sidelines but my guess is yes, they’re in the market even if they don’t believe in it’s rebound. My view is similar to yours; we’re getting there and I believe we’re closer to the end than the beginning. I personally would welcome a good 20% correction to redeploy some of profits. Eventually we’ll breakout of this 12 year range and I will stick with it until it proves me wrong.

  41. [...] I highly recommend folks read Barry Ritholtz’s post from last night: Explaining My Position On Bear Markets [...]

  42. dctodd27 says:

    Fair enough – you are correct, I said floor, not you. But your point was that the Fed’s actions prevented the market from falling farther than it otherwise would have.

    The debate here, however, is whether we’re in the process of exiting the secular bear market that we’ve been in for the last 14 years. If it is true that this is the beginning of a secular bull market, that is a very permanent thing. It implies that we’re leaving these price levels behind forever – a “floor”, if you will (I used that word on purpose). So if you’re not comfortable with the idea of the permanency of the Fed’s ability to stave off another big correction, I think that verifies your suspicions that we haven’t reached the final out of the ninth inning yet.

  43. Mike in Nola says:

    I think you need to look at the charts; every time Ben announces we bond prices sink. I think it’s because the big money anticipated a surge in equities and dumps bonds. Preceding those announcements, equities were sinking and bond prices rising in the classic flight to safety.

    While eliminating defined benefit plans sounds good in theory, it’s not good for those who have them. Not many of the 80%ers make enough to put enough away for retirement. Your average Joe struggles to pay monthly bills. Assumptions about returns are the problem both for dc advocates and db administrators. They are based on times of unusual growth and lead to bad planning.

  44. Bokolis says:

    As anyone who follows the current brand of Tony La Russa baseball should know, far from being over, the 7th inning is right about when the game starts to go to shit and grinds to a halt. In come the middle releivers and LOOGYs (Lefty One-Out GuY), none of whom are willing to throw strikes- it is maddening when the LOOGY walks the one guy he’s brought in to face. The relievers come in so early that you now need two LOOGYs.

    There are many metaphors there, but the parallel is that a bunch of shitty ideas/pitchers are used as stop-gap measures/just to get the next out.

    It just seems that the bear owes us a proper finale. For the chartists, what is that three-peaks formation on the S&P supposed to mean? Are we due another ride down to 800?

  45. Yogi says:

    I think this secular bear will bottom at valuations similar to the other great bear mkts as detailed by Russell Napier. If so, we could see the mkt lose some 65%+. The question is, does this bottom occur during the upcoming recession or the one after that. If the latter, then this bear will very long indeed! Thoughts??

  46. CharlesII says:

    danm says, “there has been no learning. Those with the money are pulling the strings and have more wealth than what they had before the crisis. It’s the status quo.

    The concentration of wealth is still increasing and the next ones to get squeezed are the top 5-15%.

    If we want to see change, the top 5-15% will need to fight…”

    The election of Elizabeth Warren and (for all its faults) Dodd-Frank are examples of meaningful change that could restore the business system to one of building businesses rather than speculating. And people continue to do that: TBP is an example of entrepreneurship.

    Yogi says, “I think this secular bear will bottom at valuations similar to the other great bear mkts as detailed by Russell Napier. If so, we could see the mkt lose some 65%+. The question is, does this bottom occur during the upcoming recession or the one after that. If the latter, then this bear will very long indeed! Thoughts??”

    Again, there’s nothing magic about washouts and there’s certainly no particular level that markets have to get to before they recover. I guess one could say that when every company gets below Price/Book, it’s a buy (assuming that it will return to profitability). But no one has made that calculation. And P/E is a pretty shaky measure: I’ve noted above the huge divergence between Shiller P/E and simple P/E.

    What the Fed is doing is buying time to allow conditions to change. And they are succeeding. Unemployment, a major cause of bankruptcy, is way down. Medical insurance, another major cause of bankruptcy, has been made near-universal. So the chances of people defaulting on mortgages have declined.

    Furthermore, many, perhaps most of the mortgages issued in 2005-8, when standards were worst, have been written off. So balance sheets are much stronger (even if they are still opaque).

    Pathway matters. If you drive off a tall cliff, you’re dead. If there’s a gently sloping ramp on the other side, you may end up at the same level, but alive and able to drive back up.

    My guess is for another moderate correction, in the 20% range. It will only be the end of the world at CNBC.

  47. ToNYC says:

    The secular bear market will end when individual doctors control medicine and health, and individual scientists control science rather than politicians who hire regulators to keep the real players in full retard mode. The market is simply the thermometer putting numbers on the result of the nixon-mitchell-rumsfeld plan.

  48. constantnormal says:

    BR, would not the Bananamerican government+Feral Reserve’s slavish devotion to the banksters and other TBTF gorporations serve as a close substitute for the Japanese Keiretsu? I grant that all the other differences between Japan and us are there, but the way that we live only to serve the TBTF seems a lot like a Bananamerican keiretsu to me.

    However, none of that indicates that the US would follow precisely in the footsteps of Japan.

    I think that our population is a LOT less tolerant of the bs that the Japanese public have endured, although the fact that there has been no significant public reaction (Occupy is not significant) to date here has surprised me — I would have thought that evicting millions of citizens from their homes and jobs would have provoked a bigger response (clueless fools who blame our lavish unemployment benefits ought to try living on them before they speak and show their ignorance).

    But fer shure, nothing will change until the imbeciles in government (Repooblican and Democrap alike) believe that their careers, at a minimum, are at risk. And that has not yet occurred. Our imbeciles are fearless and believe that they are Masters of the Universe.

  49. constantnormal says:

    I should have put quotes around “lavish unemployment benefits”, to emphasize the nonsense that I believe such a notion to be.

  50. cognos says:

    Main problem is the thinking is simple:

    Its EITHER the “7th inning”… or the “1st, 2nd inning” of the next secular bull.

    MAN! You miss that… and you’re gone, right?

    Plus, its pretty easy to bet that the last crisis was the big one… and hindsight will say its already secular bull… even if we need to muddle (which we dont… but you guys been kidding yourself on that one for years already… so go on…).

    Its now a secular bull… right? You waiting for 2,000 on SPX?


    BR: How about new highs on the SPX ?

  51. Sunny129 says:

    To ALL the Pundits:

    Was there ANY TIME in the history of US stock market, both during BULL and or BEAR markets, suspension of Mark to Market accounting standard prior to March 2009?

    Prior to that, during dot com bubble and housing bubble that was the ‘standard’ upon which ALL ASSETS evaluated with NO QUESTION from the Bankers, lenders etc!

    Is that standard banished FOREVER?! Will it ever come back?

  52. Realist326 says:

    Barry, I saw the last 3 minutes of an interview on PBS with the 3 guys who created, wrote “Life of Pi” movie, which I want to see. The interviewer loves the movie and kept asking questions trying to understand its meaning.

    One of the creators said to her “Don’t try to understand it, just feel it”. That advice applies to many things in life, including stocks, stock market. Trend following is so much easier, and makes more money, than contrarian trading. I have no clue what type of market it is, nor what inning. I merely follow the trend, which is much easier written than achieved, but there are ways to do it effectively while minimizing risk.
    History teaches but past is not prologue.

    Good Luck.


    BR: PI GIVES TERRIBLE ADVICE — just feeling it is a recipe to lose money. Half of what I write here is about how your gut instincts lead you astray. See this

  53. Realist326 says:

    Who wrote follow gut instincts? Feel the trend, follow it, saves brain cells. I don’t care “why” it’s going up or down, I don’t worry about what it should be doing, whether it’s real or fake, I want to make money, not to be a genius.


    BR: You did: “Don’t try to understand it, just feel it.”

    That strategy is a recipe for P&L disaster . . .

  54. Realist326 says:

    Ok, I read your linked article…Traders with 50% hit rates, wins twice the size as losses, are legends. I read Stan Weinstein’s book, and that is all I need. Technical analysis is easy when mastered, just keep it simple. Stan was asked many times to write a second book, and he always replies “No, it’s all in the one book”. Correct entries, exits, find support, resistance, learn to trade. Investing and trading are very different, yet often confused. Stan now charges $40,000 per year per institution for his advice. Hmmm


    BR: Yes, Instead of trading, Stan sells research. DRAW YOUR OWN CONCLUSION.

  55. danm says:

    While eliminating defined benefit plans sounds good in theory, it’s not good for those who have them. Not many of the 80%ers make enough to put enough away for retirement
    That’s why I believe there is more pain to come. The current system does not make financial sense and we will be playing whack-a-mole until things start making sense again.

    We are trying to offer socialist benefits but running the system like capitalism where all the gains go to the top. If everyone gets a chunk of those gains, then that’s socialism. Not there yet!!!

    So Americans will have to understand the difference between the 2 if they want the proper system to suit their needs.

    The only way you can have a cohort retire for 30 years is if the working cohort is big enough to support it AND if the retiring cohort has small needs. None of these two criteria are there.

    The vast majority of people will not be able to retire…. many don’t seem to grasp it yet.

    The main reason why it has worked for the last few decades is because the large baby boom cohort raised the worker to retiree ratio to 5/1.

  56. MikeW says:

    Great post, BR.

    The long-term Dow chart speaks volumes and puts us about two-thirds the way through the secular bear, with the bottom having occurred in 2009. I know that TBP tells us not to trust our guts, but since the early noughts I’ve been thinking we’d have a secular bear ending around 2016, and that just seems to fit so far.

    Tricky to attempt to time such a thing, so long-term players might as well hold the stocks of good quality companies, reinvest the dividends, and be plenty patient.

    A wise investor would also tune out the day-to-day market noise, but I make no claim to be one of those.

  57. hammerandtong2001 says:

    I don’t know if we’re in the 7th inning. And I don’t know if we’re at the end of the secular bear which started back around 2000.

    But I can say this…

    I’ve made 3 very big, personal financial moves over the course of the last 25 years or so, driven by high concern during times of national economic stress, each of them involving a significant move into low risk assets.

    And in each case, I was sorry I did so – after enough time went by. In one case, I was profoundly sorry, as that move ultimately cost me near-life-changing upside.

    So I’ve learned this: somehow, someway, despite all the gloom and all the doom, and through the fears and all the tears, things have found a way to work out all right – maybe not perfectly, but pretty good. And making a sudden, large bet against the on-going success and growth of this country, has for me, been a loser’s game.

    Staying the course, and maintaining optimism and constructive views, has allowed me to make back nearly all I forfeited in near panic circumstances years ago. And I’ll stay the course now, as well.


  58. The_Dumb_Money says:

    Barry, the only way to know if a bear market has ended is if Coca Cola stock looks cheap. :-) So far, even after today’s drop, it decidedly does not. I agree, we’re somewhere between the 6th and 9th innings, impossible to say where.

  59. brokrbob1 says:

    Why is it that secular bull markets end at the peak, but secular bear markets don’t end at the bottom?


    BR: Peak to peak defines bull markets by new highs — in other words Bull Market 1 ends at its highs, Bull Market 2 begins when those highs are eclipsed

  60. Great explanations. Thx for the clarification concerning 7th inning.

  61. DHM says:

    I’m probably the last on this dying thread, but what the hell! When I step back and look at a long-term chart, it strikes much ado about nothing. Since when does four secular bear periods does make any type of a cycle?

  62. This is an excellent thread. 100 years of data is plenty to see the patterms of the 17.6 year stock market cycle. I’ve identified increments of 2.2 years which correspnd with key intermediate turning points. 2013 is when the secular bear next roars!

    We’ll find out in 2018 if the 17.6 year stock market cycle is correct :)

  63. [...] Subjects we are discussing: 1. Where are we in the Secular Bear Markets [...]

  64. guru says:

    Barry, your conclusions are similar to mine in a post a few days earlier on February 6 in “The Secular Bear Market and the QE’s” where I compared the current Secular Bear Market vs the exit from the previous 1970′s Secular Bear Market.

  65. [...] Explaining my position on secular bear markets – The Big Picture [...]