Secular Bear

That's right, the stock market is in a secular bear market. If you read my blog, you have heard me reference this in other posts, but not actually go into detail on the topic. This post is way over due and now let me share with you they "why" of the whole equation.

First of all market tends to go in long large cycles lasting approximately a third of a century. In other words, a market cycle lasts about 33 years. In that cycle, although bull markets and bear markets last about the same length of time, bull markets out gain the bear market losses.

I believe we entered a bear market in 2000. In that 7 years, the S&P is down 4%, the NASDAQ is still down 50 freacken percent, and the DOW is up a modest 9%. These are absolutely horrible gains for a 7 year period.

Lets look at the last major bear market which occurred in the 70's. I would love to show you the graphs I am looking at right now, but I don't know how to do that being my computer savvy is quite limited. Anyways, I'm looking at a graph of the DOW 30 superimposed from the 70's to the present. The action in the graphs is strikingly similar. With this graph, the peaks of 1973 are almost exactly the peak of today's graph. What happened in the following couple years? Well, the DOW lost approximately half of its value (somewhere between 45%-50%).

One thing that the talking heads on CNBC argue is that the p/e ration and overall dividend yields are still rather low, running at around 16.7x for the p/e and 2.4% for dividend yields. Well the numbers in 1973 were all too similar at 18.7x for p/e and 2.7% for yields earnings. Another very strong similarity to the lead up to the market decline of the 70'2.

Obviously the markets eventually recovered and pushed stronger. I would like to talk about an important point. In 1966 the DOW 30 was trading near 1000. In 1983 we were trading near 1025. Knowing inflation, can you imagine if the DOW was trading at in and around 12000 a decade from now. Wealth will be destroyed and we will see a lot of retirees with a whole lot less money than they expect going into retirement. Don't forget that retirement costs are rising at around 6% per year.

I would like to note a few important items in closing. Secular bears are long periods of sideways trading. If the DOW corrects 45-50%, it would put the DOW 30 at approximately 6500-7000...wow. Remember that secular bears historically run between 16-17 years and we are only 7 years into it. The amount of wealth that will be lost will be massive due to high levels of inflation. In the same period that the DOW corrected in the 70's gold nearly tripled, and gold stocks followed suit. You DO NOT want your money in the general stock market right now.