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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  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 .
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