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Explaining My Position on Secular Bear Markets

Posted By Barry Ritholtz On February 11, 2013 @ 8:21 pm In Cycles,Markets | Comments Disabled

I hate seeing myself misquoted, misinterpreted, or just misunderstood.My prior explanations (see this [1] and this [2]) 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┬áSecular 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 [3].

Dow Jones Industrial Average 1900- present (log scale, monthly)
Click for ginormous chart
Source: Monthly Chart Portfolio, Merrill Lynch Market Analysis, November 4, 2011


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URLs in this post:

[1] this: http://www.ritholtz.com/blog/2013/02/is-the-secular-bear-market-ending/

[2] this: http://www.ritholtz.com/blog/2013/02/secular-bear-market-hibernation/

[3] questions or comments you have below: http://www.ritholtz.com/blog/2013/02/explaining-my-position-on-secular-bear-markets/#respond

[4] Image: http://www.ritholtz.com/blog/wp-content/uploads/2011/11/F1.png

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