It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford

Those who surrender freedom for security will not have, nor do they deserve, either one. Benjamin Franklin

The idea that you know what is true is dangerous, for it keeps you imprisoned in the mind. It is when you do not know, that you are free to investigate. ~ Nisargadatta Maharaj

Saturday 19 July 2014


"As the Fed ramped up its printing presses in the late 1970s to try and stimulate a stagnant economy, the value of the dollar kept eroding. So though stocks were flat on balance over that last secular-bear span, the purchasing-power losses investors absorbed were massive. That last secular bear didn't end until the S&P 500's trailing price-to-earnings ratio fell below 7x earnings, which signals secular bears have run their course.
The subsequent secular bull was mind-blowingly awesome, catapulting the SPX 1391% higher in nominal terms and 751% in real terms over the next 17 years or so. The final couple years of that secular bull marked its terminal bubble phase, when stocks rocketed straight up on unbridled euphoria to hit an astounding 43.8x earnings in SPX terms. But with valuations so extreme, that secular bull gave up its ghost.
And that ushered in today's secular bear, which is only 14.3 years old so far. That is well under the 17-year average. And if today's wildly-optimistic stock bulls are right, then the secular bear actually ended in March 2009 which would have made it last only 9 years. It is hard to imagine a secular bear surrendering after just 9 years, just over halfway into its normal duration. And valuations were far too high to kill it then.
Remember secular bears are valuation phenomena. And near the March 2009 lows the elite 500 component companies of the SPX had only retreated to a trailing P/E ratio of 11.6x. This was still a whopping 2/3rds higher than the 7x levels seen at the ends of secular bears! So the idea that the secular bear magically ended back then makes absolutely zero sense. It is a typical bull fantasy, a rationalization ignoring hard facts."

1 comment:

  1. The P/E at the end of a secular bear should be in the vicinity of the longer term bond yields. W