Yesterday (via Doug Kass), I noted that the Consumer had grown increasingly levered. Why is this so important? Because of the relationship between Consumer Spending slowdowns and Bear Markets:
Bear markets begin when growth in real consumer spending (PCE) peaks and begins to slow
click for larger graphic
The relationship between economic slowdowns (led by downtrends in year-over-year consumer spending) and bear markets (vertical yellow bars) is remarkably consistent, though not infallible, over many cycles. Most bear markets begin (see circles) when the year-over-year rate of growth in consumer spending is peaking, and investor and general business optimism are at their highest! Considerable courage is required to reduce investments at such times.