Investing strategies and secular bear markets

**winner69** · 07-03-2009, 04:39 PM

tobo .... seeing its a weekend here is your homework

http://www.crestmontresearch.com/pdf...esentation.pdf

Find out that -

Contrary To Conventional Wisdom, P/E Ratios Are Not Driven
By Interest Rates: P/E Ratios Are Driven By Inflation

and much more

**Hoop** · 10-03-2009, 10:09 PM

Hi Footsie + Others

A little clarification.
Your post deals exactly with secular cycles and governed by P/E Ratios not share indexes.
Usually secular cycles have an average life span of over 10 years and the average life of a secular Bear cycle is 14 years but it does vary somewhat. As the S&P 500 has been in a Secular bear cycle for 8 years and the P/E Ratios* have been slow to drop until 2008 combined with a recent bull market phase contained within this secular cycle it suggests this secular bear should see a long life, perhaps beyond the average life due to end in the year 2014.

Footsie your example of P/E S&P 500 level below
P/E S&P 500 Level
10X 575
8X 460 (highest previous trough low)
7X 400 (average previous trough low)
6X 350
5X 300 (lowest previous trough low)
is mathematical logical but it is not feasible in normal secular situations as it would take an extreme event to kill this secular bear prematurely in 2009 or 2010...a drop of the S&P 500 index to 300 would be this extreme event to kill it. I don't say it can't happen because it did happen in 1933.

To comprehend these secular cycles over time ..the charts below give investors perspective during times of great information hype as what we are experiencing now...What seems logical now during economic upheaval is usually not what happens in the future...seeing past events and numerous economic upheavals from charts can keep people perspectives in bounds of rationality.

Note that since 2000 the DOW has not set much higher highs (horizontal red lines), this is typical in a secular bear cycle

During a secular bear cycle the P/E Ratio downtrends and must downtrend to below 10 before an uptrend starts which then signal the start of a new secular bull cycle. With reference to the DOW chart above even with the 2008 crash this Secular bear still has a long way to go before it dies.

Note Paradox to normal layman's logic... (from the chart) that the bull Market cycles within the secular bear cycle does not make the P/E Ratio go up, (see 2003 to 2007 Bull market cycle on chart) often it still falls but at a less decelerated pace. The paradox is that a bull market cycle phase will extend the life of a secular bear not shorten it.

So we can assume that a bull cycle is not uncommon in a secular Bear Cycle and there could be many bull cycles in an very long secular Bear cycle.

On the second chart

It shows a long term 80 years of secular cycles for the DOW
Note that the figures are P/E Ratios* ranges red for secular bear cycles blue for secular bull cycles

During secular bear cycles bull market phase tops are flat or nearly flat (red trend lines). The index from the start of a secular bear cycle to the end of the secular bear cycle does not increase much and often it decreases (red trend lines on chart) showing evidence that an investor should not use a long term portfolio investing strategy** especially starting at the end of a bull market cycle within the secular bear. As the NZX 50 has entered a secular bear cycle at the end of 2007 Investors knowing this function of secular bear cycles would not opt for indexed linked equities in the new Kiwisaver plan released last year.
Note all the long term index gains are made during secular bull times (green trend lines on chart) so sometimes workers can be disadvantaged with their superannuation plans depending on when their 40 year working life occurs some may strike it unlucky by experiencing 2 secular bear cycles to 1 secular bull cycle, whle others in a different time period strike it lucky. The last thing a young 18 to 25 year old person would be thinking of when taking out a life insurance policy or some sort of indexed super scheme would be secular investment cycles..a shame really.

The area circled in red is interesting ..it shows the 1974-75 bear market phase within the 1966-1981 Secular bear cycle similar to what is happening now....notice the 1974-1977 period all the index gains lost in the bear market phase was regained again and the P/E Ratio figures were similar throughout.
During these present times of Doom and Gloom and no hope, it is very hard to imagine an event which occurred during 1974-1977, but, that event proves a point with a realistic view that it would not be impossible to see a (2009) 2010 - 2011 bull market cycle phase with a 50+% index gain with little to no rise in P/E ratio*.

**See Winner69 post#1 on this thread

What might seem logical is usually not...and paradoxes and illogical perceptions can be true.
such as:-
A great depression kills secular bears prematurely and creates an equity bull rush. One would assume a great depression would cause stocks to stay in limbo for many years but from history this is not true.

and

P/E ratio falls is realistically possible in a period of rising index levels (uptrend), but only in a secular bear cycle, and not possible in a secular bull cycles

**Footsie** · 11-03-2009, 04:36 PM

So what are you saying Hoop

now is the time to Buy>?

**Hoop** · 13-03-2009, 09:44 AM

* Commodities Count. The end of commodity price declines also marked all 4 major equity lows, with copper playing a prominent role as it preceded or coincided with every equity rebound. Russell Napier

The copper indicator suggests the Equity Markets have bottomed or is now in the process of its last bottoming event. Nearly all the other indicators I use confirm (except US$ decline)

Copper update

**Footsie** · 13-03-2009, 09:56 AM

My personal view is that markets will need to re-test the lows we have just seen before we can mount a meaningful recovery.

This implies a sharp rally up now, and another sharp fall down.

Technically the market needs more time at these levels before it can commence recovery.

However, we have been primed for a decent bear rally as the pessimism last week was overwhelming..... everyone had become chicken little.
I felt it myself

Whenever this happens the market turns. I felt the same way in March 08, Oct/nov 08 and again march 09. It's just a feeling of total dispair. Horrible. When I get that feeling I close my short position.

I will definitely ride this rally, but wont be giong back into LONG TERM "buy hold" positions