IT AIN’T OVER ‘TIL IT’S OVER

It ain’t over until it’s over. The lows were not reached in 2009. Central bank manipulations and schemes temporarily delayed reaching a true bottom. They have failed. A true secular bottom would be 60% to 80% below today’s levels. Are you prepared for that? That would put the Dow at 7,000 or below. Do you think that is impossible? It was trading at 6,500 in March of 2009. If Bernanke and Geithner hadn’t forced the FASB to allow Wall Street bankers to value their worthless assets as if they were worth 100 cents on the dollar, the 4,000 secular low would have been reached. Now we will pay the price with a far worse scenario. The Fed has shot their load. Fourth Turnings are relentless and nasty.

Are We About to Enter a Secular Bear Market?

Guest Post by Chris Hunter


Wall_Street_bubbles_-_Always_the_same_-_Keppler_1901_1

Source: wikimedia

Today’s chart, from the folks at Crestmont Research, speaks volumes about current investor behavior.

In particular, it calls into question claims being bandied about in the mainstream media that we could be at the start of a new secular bull market in US stocks.

It shows that previous secular (long-term) bear market cycles tend to start when the US stock market is trading on a Shiller P/E – a price-to-earnings ratio is based on average inflation-adjusted earnings from the previous 10 years – of between 20 and 25 (blue-shaded area on the chart).

012115-DRE

This is true of the 1901-20… the 1929-32… the 1937-41… and the 1966-81 secular bear markets.

And the “lost decade” for US stocks that began in 2000 started out with the stock market trading on a Shiller P/E of more than 45!

You can also see that the Shiller P/E range for when secular bull markets start and secular bear markets end is between 5 and 10 (pink-shaded area on the chart).

Right now, the S&P 500 trades on a Shiller P/E of 26.5 – higher than the historic range for the start of secular bear markets and the end of secular bull markets.

Does that mean US stocks can’t go higher from here?

Anything is possible in a world where central banks are manipulating stock and bond prices.

But it should at least give long-term investors buying into US stocks at current valuations pause for thought. History shows that when the stock market is this richly valued, secular bear markets tend to follow.

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Westcoaster
Westcoaster

I think we’re on the leading edge of a 50 year bear market. TE is right; things are FUBAR!

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