THOUGHTS ON THE SECULAR BEAR WINDING DOWN

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Since I have received numerous emails about what people like Harry Dent and Bill Gross have said recently about the stock market, I thought I would chime in.

Just to refresh your memory, it was way back in 2002 when I postulated (big word) the thought that we had entered a period akin to 1966-1982 where the market did absolutely nothing over that 16 year period. Of course, I was laughed at as the thought was outside the box. But all one would have to do is take a quick glance at the history of the market to see that it is quite normal to go through longer phases where stock markets do not do much. This occurs for several reasons.

First off and most importantly, secular bear markets serve to work off the prior big upward move in the markets. During this up move, valuations get out of hand to the upside. During the up move, investors become conditioned to making a certain amount every year…no matter what. During the up move, speculation becomes rampant and the market becomes a gimmee!

Secondly, secular bears serve to get most all bearish about markets to where no one wants in. You do recall “THE DEATH OF EQUITIES!” cover of Businessweek in 1979…which came late in the secular bear.

Lastly, secular bears bring valuations down to levels to where a new secular bull can lift off from. I do not have exact numbers but I believe the P/E in 1982 was in the 8-9 area with dividend yields north of 5%.

This brings us to today. Today, major indices are still down anywhere from 10-40% from the highs 12 years ago…with the Nasdaq bubble down the most. Today, valuations have come way down from where they were in 2000 though they are not close to the 1982 valuations. Today, mutual fund outflows continue as investors are weary of the “overall” market. Today, investors are sick of the shenanigans and the criminal activity that has not been prosecuted on Wall Street. Today, we are finally starting to see some what I call “give up” by a few certain pundits.

Now…let me be clear. Bill Gross can run circles around me with a blindfold on. He is an icon on Wall Street. In no way, by mentioning him, am I trying to put him down. But what came out of his mouth in the past few weeks is just what the market needs…more and more people saying the market is done. Harry Dent is also calling for a depression. I won’t get into when he started making that call because no one is perfect.

I am just letting you know WE ARE GETTING LATE IN THE SECULAR BEAR MARKET…NOT EARLY. I am not saying a new secular bull market starts tomorrow. I am just saying that the average secular bear market has lasted in the neighborhood of 15-16 years…and right now we are over 12 years into it. There is no law that says one cannot end after 13 or 14 years. So please…pay attention, secular bull markets start when everyone hates the market…when everyone does not trust the market…when everyone says to stay out of the market. Maybe there is a few more years of this up and down nausea…I am just letting you know it is time to pay attention and not to run away.

Lastly, I know about the deficits. I know about the dirtbags in Washington. I know about Japan whose markets have done nothing for decades. I know there are a lot of fundamental issues out there…but out of the bad, comes the good. Back in the late 70s, there was nothing but bad headlines. INFLATION…INFLATION…INFLATION…MALAISE…MALAISE...MALAISE. Moral of the story…WATCH THE MARKET! It will decide when…and again, after 12 years, I believe we are getting closer. And the more and more people who come out for staying away from the market, the better.

 

Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.