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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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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