38 replies to this topic

[bobalou]

ufo ,,people have not been in the market long enough..if they played in the 70s,and the spx moved 50 pts for yrs., what would they say then ? it's fixed..but may be it's better that they think that way...because,,V V LT..the spx could pull back the to 1000,or 850,, and still be in a bull

[U.F.O.]

You may be right bobalou. Are we getting old? U.F.O.

[Rogerdodger]

Virtually every index has put in new, lifetime highs since 2000.

If you take into consideration the dollar's value & inflation you will see many "lifetime" tops in 2000.
LINK

Edited by Rogerdodger, 25 August 2008 - 11:41 AM.

[IYB]

secular bear market which began in 2000

What nonsense ? A broad market like NYSE taking out it's secular highs? This kind of nonsense gets published by some well known perma bears and the rest of the fast lane, fast food crowd who lack independent thinking, embrace these theories. If someone said 2007 was a secular top, then i would at least give some benefit of doubt to their hopes/theories........

I missed this whole string completely over the weekend and am just seeing it for the first time today. I'll post some thoughts on the super-cycle when I have a chance in coming days- though I think most have their minds made up on this issue anyhow, so what I have to say won't really make any difference or hold much interest for most.

But just a quick thought or two for right now. Secular bull markets are periods of 15-20 years where PE's have been in an expansionary mode- often 3 fold expansion, coupled with earnings growth- which have resulted in huge multiple moves the major averages-5-8 fold or more. Secular bear markets have been periods of similar length of time when PE's have contacted marketly, often by 2/3, where though nominal earnings have expanded, major averages have been rangebound. The occurance of such secular trends have been rather "regular" over time. The last secular bear market lasted from roughly 1965 to 1982. The current secular bear which began in 2000 is much like the 1965-1982 period, where while averages made nominal and marginal new highs, for example, in 1973, the market in reality stayed rangebound between roughly 550-1050 on the DJIA for the entire 18 year period. Recent marginal new highs were again nominal, and characterized by very much much lower PE's than the 2000 peak, and relatively narrow in scope with, for example, NASDAQ falling far short of 2000 peaks.

Those I know who embrace such an overall view of the last 100 years and expectation for the future would be called anything but perma-bears or indeed, perma-anything- as they are very conscious of the current cycle at play in the market at any given time- like the cyclical bull market which began from the October 2002/March 2003 bottom. I remember, for example, being called a "perma-bull" back in 2003, 2004, 2005, and 2006 for, I guess, the same reason this post seems to suggest those who view the market in terms of cyclical trends and secular trends are, at heart, perma-bears.

Anyhow, thanks for the question, UFO, and fwiw, I'll try to get to it soon, though frankly, whether others agree or disagree really matters little.....Very Best and continued good trading, D

Edited by IYB, 25 August 2008 - 02:46 PM.

[IYB]

All I know is that what happened in 2000 was the super top of something. I doubt we ever see that much interest in stocks for a very long time to come. With valuations and speculation unprecedented.

Just as it did in 1929 and again in 1965, 2000 marked a valuation peak for stocks, as well as the peak in speculation for a couple of generations. Roughly 35 years apart-a complete secular bear and bull cycle- though there is nothing "magic" about the precise year. It was no coincidence that 2000 marked a muti-generational peak in valuation, any more than that 1982 marked a secular bottom. If one were really interested enough to look back at the prior centuries (as I've done in decades past), one would see that this pattern is fairly regular and recurring for the speculation cycles. I didn't say "perfect". But regular and recurring.

Why does any of this matter? In a word....context. I doubt that anyone who understands these cycles, for example, has FNMA tucked away in his or her IRA, nor is he looking, constantly, for "the bottom" that will lead to new highs immediately ahead, any more than that he or she was expecting a depression and market collapse after the 1987 debacle. Trading is another matter entirely, of course. But havivg an understanding of context certainly provides a solid base for developing sound trading methodology.

Best, D

Edited by IYB, 25 August 2008 - 03:54 PM.

[cgnx]

I go along with this completely. cgnx

All I know is that what happened in 2000 was the super top of something. I doubt we ever see that much interest in stocks for a very long time to come. With valuations and speculation unprecedented.

Just as it did in 1929 and again in 1965, 2000 marked a valuation peak for stocks, as well as the peak in speculation for a couple of generations. Roughly 35 years apart-a complete secular bear and bull cycle- though there is nothing "magic" about the precise year. It was no coincidence that 2000 marked a muti-generational peak in valuation, any more than that 1982 marked a secular bottom. If one were really interested enough to look back at the prior centuries (as I've done in decades past), one would see that this pattern is fairly regular and recurring for the speculation cycles. I didn't say "perfect". But regular and recurring.

Why does any of this matter? In a word....context. I doubt that anyone who understands these cycles, for example, has FNMA tucked away in his or her IRA, nor is he looking, constantly, for "the bottom" that will lead to new highs immediately ahead, any more than that he or she was expecting a depression and market collapse after the 1987 debacle. Trading is another matter entirely, of course. But havivg an understanding of context certainly provides a solid base for developing sound trading methodology.

Best, D

[U.F.O.]

Ok Don. I understand your point. But how would that have helped anyone as a trader as the 2002-2007 bull reasserted itself and indices put in new highs? Context is great if it helps you make money, context is worthless if it doesn't. This almost reminds me of the philosophical debate about the tree falling in the forest and whether or not it makes a noise if no-one is there to hear it. Who cares if a logging company was chopping down the trees, making money, and the price of lumber was going up while you were long? I think someone needs to reevaluate the textbook definition of a secular bear (or bull) market from a different kind of context. The context of what happens when actual market prices don't fit within the standard definition. Your point about sometimes prices can make "marginal" higher highs doesn't work because many of the larger indices put in MUCH higher highs. If "context is everything" and the average secular market is what, 15 years(?), then 1/3 of this secular bear market was busy doing the bull's work. U.F.O.

[IYB]

Ok Don. I understand your point. But how would that have helped anyone as a trader as the 2002-2007 bull reasserted itself and indices put in new highs? Context is great if it helps you make money, context is worthless if it doesn't. This almost reminds me of the philosophical debate about the tree falling in the forest and whether or not it makes a noise if no-one is there to hear it. Who cares if a logging company was chopping down the trees, making money, and the price of lumber was going up while you were long? I think someone needs to reevaluate the textbook definition of a secular bear (or bull) market from a different kind of context. The context of what happens when actual market prices don't fit within the standard definition. Your point about sometimes prices can make "marginal" higher highs doesn't work because many of the larger indices put in MUCH higher highs. If "context is everything" and the average secular market is what, 15 years(?), then 1/3 of this secular bear market was busy doing the bull's work.

U.F.O.

Excellent questions UFO. I would expect no less from you. I don't know if you remember my posts from 2003, 2004, 2005, but I said over and over during that period that the cyclical trend had bottomed and a new cyclical bull market had begun off of the March 2003 lows. But I also pointed out many times that the cyclical bull then underway was within the context of a secular bear market that had begun from the 2000 top. Within every secular trend (15-20 years in duration) are several bull and bear cycles (of typically about 4 year duration). The latest cyclical bull ran 2002 to 2007- way longer than most. But it ended about where it "should have". We are now in the downside of that cycle- a cyclical bear market within the same context of a secular bear market which had started from the 2000 peak.

What good does an understanding of the secular trend do?

Plenty.... Just as in 1990, as shown by your earlier charts which started this discussion, the market was involved in a cyclical bear market within the ongoing secular bull trend which began in 1982. After the 1987 crash, as you pointed out, bearishness was rampant. Many expected 1990 decline to drop into a deep dark pit- perhaps below the 1987 bottom. But recognizing the big picture- the secular bull that started in 1982, one could surmise that this was highly unlikely, and be on the alert for a cyclical bottom--which is just what occurred in 1990. This was also, again, true in 1994 and 1998- while most looked for deep declines, an overview of the secular trend told you that cyclical bear markets would be mild - keeping you from falling into the trap that infected so many traders at that time.

At the same time, it told you that the uptrends would probably surprise most- going far farther than most expected. Why? Because we were engaged in a secular bull market, and cyclical bull markets in that environment tend to be much stronger than anyone expects. Just like in the 20's and then the late 50's and into mid 60's, by the way.

So now- what good does an appreciation of prevailing secular bear market do? Just the opposite as above. One can expect that the cyclical bull markets are likely, at best, make marginal new highs on some averages, and fall short on others. So this tends to tamp down expectations of 90's type markets- when, in fact, they are very unlikely to occur. And what of the downside? Just this: one should expect the declines to go much deeper than anyone expects...because such are the nature of cyclical bear markets in a secular bear trend. This was true of the 2000-2002 cyclical bear market. It will be true of this one (already very aparent among financials many of which have dropped 75% or more already- some 90 to 100%), and it will again be true of the next cyclical bear market out in 2011 area. Cyclical bear markets will astound traders with their violence, cyclical bull markets will disappoint traders with their relative weakness..... Context.

Look, I don't expect you or anyone else here to take my word for what I'm saying, but maybe it will stimulate thought and study by some. Maybe some will think to look back on this later and see if it works out that way. I came to these conclusions in the late 70's early 80's, and watched the 1982-2000 secular bull unfold within the context of that framework, and am watching this secular bear unfold within that framework as well. And this framework is highly useful to what I do.

Most will dismiss the above out of hand, and that's absolutely okay with me. Others will argue that this has nothing to do with how they trade- and perhaps they are right. But since you asked, I tried to give you my view of the big picture in as clear terms as I could.

Very Best, D

[U.F.O.]

And, as always, you are causing me to think harder than I'd like. Best. U.F.O.

Edited by U.F.O., 25 August 2008 - 08:17 PM.