Investing strategies and secular bear markets

[Hoop]

An Article of interest from http://tradersnarrative.wordpress.co...r-bear-market/

This topic has been well documented on this thread...however it is the statement and link (According to the 18 year commodity/stock market cycle we still have about 6 years left to go.) within this article which caught my eye as it is the hot topic at this moment in time. I will post the linked article under this post

A Cyclical Bull Market Within A Secular Bear Market

Posted on December 16, 2010 by Babak
With the year winding down, equity strategists are busy putting out their outlook for the next year. In a recent article David Wilson, of Bloomberg, featured a report from Binky Chadha, Deutsche Bank’s chief US equity strategist which seemed familiar.
Chadha pointed out that the 10 year rolling return of the S&P 500 index is now in one of those historically rare troughs. And based on this, suggested that the next 10 to 15 years will be very good for stocks.
Long time readers may remember highlighting this amid the darkest days of the 2008 bear market: Why Long Term Investors Should Consider Buying and again in March 2009, just as the bull market was starting: Revisiting the Long Term Bullish Case for Stocks.
Here is an updated chart from early 1900′s to now:

Source: Data from Prof. Shiller
It is important to note that the data is based on ex-dividend S&P 500 index levels and that dividends provide a significant boos to total returns. But since we are also ignoring transaction costs and taxes, let’s pretend that the difference is small.
In any case, the chart can be interpreted in differing ways depending on your personal bias. If you’re bullish, it is indicative of blue skies and a forecast of a similar run up to 280-300% returns within the next decade.
If you’re bearish on the other hand, it confirms just how bad things are. After all, previous intervals of history that shared similar negative returns are infamous to any trader: 1932, 1939 and 1975. Those were grueling bear markets that devastated portfolios and made mincemeat of the majority of investors who tried to time the ensuing markets.
Personally, I’m agnostic. I used this chart originally to offer a calming (very) long term perspective. A bear market can be very painful emotionally and it is easy to get caught up in the fear and loathing. So hopefully the previous two times that I wrote about this helped some people to come to grips with the fact that the world was not, in fact, ending.
This therefore, is more useful in pointing out that the worst is over, rather than being a predictor of better times ahead. According to the 18 year commodity/stock market cycle we still have about 6 years left to go.
That is, if we assume that the huge base that is being built by the major indexes going sideways won’t be over for the typical 17.6 years and if we assume that it started at the 1999 bubble top. As I outlined yesterday, the current bull market is healthy and will probably continue. But it is a cyclical one. A secular bull market of the kind that propelled stocks like a rocket from 1982 to 1999 isn’t around the corner.
That’s why I don’t agree with Chadha’s forecast for the S&P 500 index to close at 1550 by the end of 2011. This, by the way, is the highest forecast by at least 100 points. Chadha also had a very bullish bias for 2010, estimating that the S&P 500 index would finish this year at 1325 (or 7.3% higher than today’s close).

[Hoop]

Carrying on from the post above..
Just to let people know that my views about Davvid Rosenburg has not changed...Yes he is a great Economist but I think he is not entirely impartial ..He is permabear and I get this feeling he's not in full control of his bearish emotions when he delivers his facts...however I must congratulate and give the Guy credit when credit is due..

Quote from the above posted article..."
According to the 18 year commodity/stock market cycle we still have about 6 years left to go. "

Note : This 18 yr Stock cycle thing they mention is the average time period of the secular Cycle. Both Winner 69 and I have mentioned many times on this thread that the S&P DOW current Secular Bear Cycle will die sometime in the 2016 to 2020 time frame.
As the Secular Bear started in 2000 the average cycle would see a secular turn in 2018.

The interesting point about this article below it was published in July 2009.
It is common knowledge that Commodities has reverse correlation of sorts with the Equity secular Bear cycle and David Rosenburg reminded people then that they were in a time of a commodity secular bull market cycle. What David and others did not count on was the severity of this sudden sinister looking drop within this supposedly commodity Bull market cycle ..the GFC effect on the Commodities bull cycle looked at that time in 2009 to have killed the Bull....however when David Rosenberg was questioned about this in 2009...he responded that the commodities index would recover and rise up again (hence assuming the Commodity Bull market cycle was still intact) against many others experience opinions including the author of this article...GOOD CALL DAVID ..his call was rational see below this posted article

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The 18 Year Stock Market & Commodity Cycle

Published July 14th, 2009 in Natural Resources Tags: 18 year cycle, Art Cashin, bull market, cnbc, commodities, crb, David Rosenberg, deflation, Dow Jones, jim rogers.
If we step back from the day to day movements of the stock market and take a very wide perspective, we notice some overarching cycles at play. One of these is the 18 year stock market. Some, like Art Cashin in the video below, express it as a 17.6 year cycle but in reality this is not a precise determination. The 18 year cycle is more an average than an accurate, regularly repeating cycle:

Since stock prices are supposed to be random, it is odd to find such an orderly pattern. Why equity prices follow this rhythm may not be so befuddling if we consider commodity prices as their counter balance. For example, zooming in, we can see the period from 1980’s to the present for the Reuters/Jeffries CRB Index, the most popular proxy for the commodity markets:
While the equity markets went on a generational bull market from the 1980’s to their top in 2000, the commodities markets were in a painful and protracted bear market. This wasn’t just a coincidence. Over the long term, equities and commodities are on a teeter totter: when one is up, the other down; when one wins, the other loses. Of course this relationship isn’t evident until you step back from the short term fluctuations.

The rationale for this is simple. The price of physical goods are expenses for corporations as they are the raw materials to produce things. When the costs increase, profits decrease. This trend continues until it reaches an inflection point where it can not continue. Profits decrease and a retrenchment takes place. Demand decreases for raw materials and their prices fall.
Then this trend continues until investments in the acquirement and production of raw materials is ignored. Mines take billions of dollars to develop and can take decades to ramp up production. Oil reserves likewise are expensive to find and exploit. As the current supplies are depleted, the prices of physical goods rises. It continues to rise until it reaches a tipping point when investment in the sector once again is lucrative. And the wheel turns again.
I was introduced to this cycle when I read Hot Commodities by Jim Rogers. This is a great introductory book to the commodities markets by the way. I highly recommend it.
According to economist David Rosenberg, we are halfway through the current bear market. This estimate is in keeping with the 18 year cycle if we assume that the top was in early 2000. And the counter estimate is that we have the same period of time left in the commodities bull market. But something is amiss.
The CRB index crumbled 57% from its top in 2008. We haven’t seen such a decline before in a commodity bull market. Those are serious deflationary forces at play right now in the world economy. Which is why central banks are throwing everything and the kitchen sink at it to prevent it from spiraling out of control. Here is a free 60 page book from EWI about the dangers of deflation and how to position yourself both defensively and offensively to benefit.


Rosenberg continues to believe in a healthy commodity bull market but I’m not so sure. What we saw last year was not a normal bull market but a speculative bubble caused by lax regulations which allowed large institutions to run roughshod over everyone else and walk prices higher. The aftermath of bubbles is always ugly and unpredictable to some degree so I have my suspicions that the regular cycle was tampered with, in a sense, by this.

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CRB future index chart above ends at July 2009. A casual eye over that chart a laymen would assume the 8 yr bull is dead and buried... The knowledge of History and correlating past data between Commodities V Equities on a secular nature and faith that over a longer term nothing is different this time to last time would have uyou predicting that Commodities would rapidly rise back up creating a charted down spike anomally within the Commodity secular bull market cycle.

When will this present Commodity Secular Bull Market end???....probable when the Equity Secular Bear market ends...(average , in the year 2018)

Caution: Secular Bull Market cycles contain cyclic bear market cycles

[Hoop]

Follow on post
The last post showed the CRB index Commodities index) chart up to July 2009.

So what has happened since Jul 2009 to now?
Are we witnessing a Commodity bubble?

The chart below says no bubble and it seems commodities still have plenty of room to go upwards.

Remember... the secular market inverse correlation between Commodities and Equities.
Remember...Secular bulls create new record breaking highs ..secular bears don't

[Hoop]

I mention this post on the Depression ASX thread but I have added the primary driver PE Ratio chart as a extra comparison...Over the very long term PE Ratio is the primary driver of the stock market. and as is shown below Inflation is the key secondary driver. The yield rate correlates the secondary driver inflation as shown on the chart.

NOTE the PARADOX ...inflation falls in the Secular Bull Market
How many people have been brainwashed by the media in thinking that during the Equity boom times it is the other way around ....eh


Beware of the doomdayists who picks bits out of the overall picture to "valid" their argument.

Permabears have a field day with "blips" (the unexpected dips in the charted areas) and because they are so easy to see the permabears will produce their convincing short term charts to prove their argument.

At this point in time half way through a secular bear market cycle the yield rate is only 1.78% .This in isolation sounds bad ...but...note the very low iflation rate (correlation) and both were lower last year so it is rising. Secular cycles have their crises and from the chart you can see that the lines can deviate widely from the loose trend lines...This happens all the time so to say that this time is different has so far been unsubstantiated.
As you can see from the charts the yield rate jumps all around the place during the secular cycle but there is a trend from the beginning and the end of each cycle.

During the Secular Bear the yield trend is up but there are many dips over 15 of them in the bear cycles this last 15 months is just another dip to add to the collection.

One thing that history can tell you is that when (2018?) this current secular bear market is over the inflation rate will be high and the yield rate will be correlated higher as well

[Hoop]

Today marks an important DOW close at 12143 It is testing its primary uptrend line. If it breaks downwards it could signal the end of this cyclic bull market cycle and a commencement of the next cyclic Bear market.
History shows us that secular bear markets seldom reach higher highs therefore it can assumed that the DOW index is in a position where it may not rise much further before the Cyclic Bull dies.

The charts are self-explanatory ....the blue numbers on the chart represent the 3 stages of a cyclic bull market 1 the climb of the wall of worry 2 the breather 3 the perception that the good times are nearly here and the fear of falling is low.. exuberance.. (see Vix chart)

Notice on this old (produced in 2006) but still relevant Millyaville chart how the DOW index enters into an uptrend when the PE Ratio enters an uptrend (secular bull market)and flattens out and enters a trading range during the down trending P/E Ratio (secular bear)..

Since the year 2000 the DOW has been in that trading range era again suggesting the DOW is now at the high-end and will soon head down to test the low end (6500) of the range again.

[Hoop]

Hoop, the decline of the USD against most other currencies will see the DOW climb further yet (but just don't tell anyone that the DOW et al have been tanking for ages except when measured in USD).

DOW been there done that many times before just a cyclic thing ,,,same with US $

Note ...no correlation between the state of the economy and the DOW (long sustained growth seems to be positive for the DOW so an argument of a sustained growth type of correlation could be debated.
..........no correlation between the US$ index and the DOW
..........Maybe correlation between some (not all) recessions and the low US$ index
A selection of 40 year charts is not enough time data to make any correlation conclusion

[Hoop]

Today marks an important DOW close at 12143 It is testing its primary uptrend line. If it breaks downwards it could signal the end of this cyclic bull market cycle and a commencement of the next cyclic Bear market....

Closed down 266 to 11867 (-2.19%).
The same day the debt - limit bill was signed into Law...The media hype around this bill lasted weeks and unnerved the global markets. Its resolvement should have seen a period of days with a relief rally.. it did but it only lasted a few hours...reinforcing my belief that this Equity weakness is technical based and the cyclic Bull to Bear cycle transitional phase has begun.

[Hoop]

Closed down 266 to 11867 (-2.19%).
The same day the debt - limit bill was signed into Law...The media hype around this bill lasted weeks and unnerved the global markets. Its resolvement should have seen a period of days with a relief rally.. it did but it only lasted a few hours...reinforcing my belief that this Equity weakness is technical based and the cyclic Bull to Bear cycle transitional phase has begun.

The DOW theory signalled a primary tide Bear Market at close on the 2 August 2011 see my DOW thread post #789

[winner69]

Here's an Aussie view on a lot of the things that Hoop and myself have been talking about
http://www.businessspectator.com.au/...=AUTHENTICATED REMEMBER

Only problem this guy reckons a secular bear market has just started in Australia ... and these run for 15 years.

As always don't forget that many bull markets within a secular bear ... keep an eye on the charts nad make the most of these opportunities . .. but buy and hold is not the way to go

[Lizard]

Though taking a whole-of-market point of view, it isn't possible for everyone to be getting in and out. Surely, over time, this behaviour contributes to more volatility, with moves becoming ever more dramatic and self-fulfilling until it becomes too fast to trade and reversal occurs (i.e. buy falls, sell rises)... although, perhaps more likely that it just reaches the point where large majority just put sharemarket in the too-hard basket and end up with lack of liquidity, wide spreads and barely a pulse?