Secular bull and bear market

* Secular Bull and Bear *


Even if you do not invest in the stock market, you need to understand it. The market is a forecast of our economy which in turn affects every aspect of our life. If the market is good, the economy is good and every one would have a job. Even the poor would benefit with more generous benefits from the government and more donations from individuals.

We have a secular bull and bear market as follows (the years are not exact but useful for illustration) as follows:

Secular bear market: 1960-1980
Secular bull market: 1980-2000
Secular bear market: 2000- now

In a secular bull market, every investor is a genius. Their stocks rise with the tide. With the profits from the market, they spend more on disposable consumer products and even give to the poor generously.

What causes the secular market condition that last for about 20 years? To me, the major common denominator is the war and it is my contribution to this theory if not already mentioned before. In 1960s, it is the Vietnam War and the effect after this war. Today it is the two wars in the Middle East.

After the war, our leaders do not forget the harmful effects. They cannot get re-elected with the war, so there will be no war for a long while. That’s my explanation of the secular bull market from 1980-2000. After 2000 our leaders forgot the wars and history repeated itself.

Wars are the primary cause of a secular market and bubbles are the triggers to recessions. In 2000, we had the internet bubble and we had the housing bubble in 2007 (derivatives is the pin that burst the bubble). With minor exceptions, all bubbles are caused by excessive valuation (housing value was too high due to the government easy money) and they will come back to the average value eventually. The only exception could be gold which does not really appreciate but the dollar depreciates.

If we concentrate our energy/wealth in economy rather than wars, we could fix the bubble easier before they’re burst and at least soft landing instead of hard landing.

I expect we’ll have a prolonged bull market three years after ending the two wars. By then, the housing problem will be solved by absorbing the inventory and the settling a solution on Euro crisis. Until the politicians forget the harmful effects on the war, the prolonged cycle will continue.

Prediction.
If the next secular bull market starts in 2015, we would shorten the cycle from 20 years to 15. For this reasoning, we may have to check again (on the possibility of war similar to Vietnam and these two Middle East wars) at the 10th year or so of the next bull market to see whether it would be 15 or 20 years.

There are market cycles within the secular market. I change the predicted duration from 4 to 5 years for similar reasoning.

Click on Strategies on Secular Markets.



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(c) TonyP4 2012. Written in 12/06/11. Last updated in 1/18/12.

Disclaimer:

Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.

All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.