The latest column is up at TheStreet.com, titled Cult of the Bear, Part 2. This is now the second of what has become a 3 parter, outlining the Bear Case for 2006.
Today, I go over the cyclical and technical basis for the markets being vulnerable to a major dislocation this year.
Here’s an excerpt:
Regardless of how each one ends, every bull market over the past century has been followed by a significant refractory period. As the chart shows, it takes quite a while to recover from a crash. Some of this is due to the destruction of capital. At the end of bull markets, many indutries end up with excess capacity (think optical fiber or telecom.) But do not overlook the large psychological component of the pain incurred by investors. The damage gets repaired when investors finally forget about the pain they suffered — or when a new crop of investors (without scars) finally appears.
Today, market junkies have a new mistress: homes. Their former passion for stocks has been replaced. As we have seen, their equity wounds — plus 46-year low interest rates — has made real estate the new hottie. My guess is that nothing short of a large and sustained move upward (e.g. several quarters) will rekindle their love affair with equities.
How likely is that? Is it possible that an 18-year bull market (1982-2000) could be followed by a two-and-a-half-year bear (March 2000 peak to October 2002 low), then followed by another multidecade (2003-2018) bull? Sure, anything is possible. But as the chart above shows, it would be historically unprecedented.
Regular blog readers have seen snippets of the 4 charts usd in this. The column attempts to pull together the cyclical and technical arguments into a coherent whole . . .
Cult of the Bear, Part 2
RealMoney.com, 1/9/2006 7:12 AM EST