Secular Bull Market is Coming!

My definitions

A secular stock market is a prolonged period (about 15 to 20 years) that the market is heading in one particular direction. There have been secular bear markets and secular bull markets depending on the direction of the stock market.

Market cycles exist within a secular market. Market cycles last for about 5 years. The market cycle of 2000-2007 lasts for about 7 years and the recent one from 2007-to 2012 lasts for about 5 years.

Within a year there are often two mini market cycles. The market (represented by S&P500 index or SPY) dips and surges and they provide the best time to sell on surges and best time to buy on dips.

The secular market cycle, market cycle and yearly dips (also known as mini market cycles) are not scientific concepts. Hence, their average durations are very rough estimates.

Market Cycle vs. Economical Cycle

Understanding Market Cycle is important to investors and Economical Cycle (also known as Business Cycle) is important to economists and businessmen. Do not be confused with the two. Secular economy cycle always follows secular market cycle at least from the last 60 years. The economy cycle usually lags the market cycle by 6 months.  

My prediction: The secular bull will start in 2017

Whenever a famous person predicts with any certainty that the end of the world is coming or the Dow will double next year, it is loudly broadcasted over the news. I predict that the next secular bull market will start as early as in 2017 (Note: After Obama’s election win, I changed it from 2015 to 2017). As a nobody, who ought to take my prediction seriously?  If this really happens, remember you heard it (with legitimate reasons for this) from me first!

This is a bold prediction! There are reasons why it may happen and also reasons considered why it might not happen. I could write a book on this topic but I will spare you the details. However, let us carefully scrutinize the coming events to better clarify my prediction. Act on the prediction otherwise all is lost!

Timing is everything even though there is nothing truly considered as perfect timing. But be aware that reacting too early as it can cost you money, or too late as to miss the opportunity.

Past secular markets

If the market is good, the economy is good and every person would have a job. Even the poor would benefit from the more generous government benefits and increased individual generosity. I have identified the last three secular bull and bear markets:

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

I did not include secular markets before 1960 as those times do not resemble today’s market conditions.

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

The cause of secular markets: War or lack of war

What causes the secular markets that usually last for about 20 years? My contribution to this theory is that war is the major common denominator to the determination of secular bull or secular bear markets. Though I have not read any article that distinguishes it out, I am sure the concept is so obvious that someone would reach the same conclusion. In the 1960s, it was the Vietnam War and the effects after this war. Today it is the two wars in the Middle East. Wars cost us a lot of resources. When these resources are devoted to the economy, the economy will grow.

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

Wars are the primary cause of a secular bear market and bubbles are the triggers to recessions. In 2000, we had the internet bubble and we had the housing bubble in 2008. With minor exceptions, all bubbles are caused by excessive valuation and they will come back to the average value eventually. In 2000, many internet companies had no profits or their P/Es were very high from the average P/E. In 2008, the market housing value was too high to the availability of credit. The only exception is the recent price of gold which does not really appreciate that much as the dollar depreciates.

If the government concentrates its efforts on the economy rather than wars, it could detect the bubble earlier before its burst and at least the economy would have had a soft landing rather than the hard landing in 2008.  Remind the politicians to avoid any future war.

I expect we’ll have a prolonged bull market as early as in 2017 after ending the two wars completely. By 2014, the housing problem should be solved by absorbing the inventory and the Euro crisis should also be resolved. Until the politicians forget the harmful effects from the war, the secular bull market will continue for the next 15 to 20 years.

Secular bull market could be postponed to 2020

The following events may prevent a secular bull market starting in 2017 and postpone it to 2020 or earlier:

1.       A United States war with China due to protecting Taiwan from invasion. When the Chinese government cannot suppress the internal unrest and to detract attention of its own inability, it would forces invade Taiwan. More likely, a trade blockage would be more effective with tight economical ties with each other.

2.       Another probable cause for war is the U.S. military backing of Japan and other Asian countries on the disputes of the islands near Japan or the Philippines.

3.       World climate change adversely affects the food supply. If the technology that has improved the production of food in last 50 years did not continue, there would be a famine in poor countries. 

 

4.       Global warming leads to many problems such as the shortage of drink water.

5.       Natural disasters such as earthquakes and hurricanes. California is long due for a big one.

6.       Huge budget deficit.

If the government continues to spend unfunded: the prolonged unbalanced budget could never get us out of the recession. In addition, the government’s excessive obligations on generous welfare, social security, Medicare and other entitlement budgetary obligations are growing too quickly and lead to imminent bankruptcy.

The Fiscal Cliff has not really been fixed and we are still too deep into debts.

7.       The trapped gas and oil could provide us with enough energy for the next 50 years. The successful extraction could accelerate the start of the secular bull market back to 2015.

Conclusion

Be realistic: re-access these developments and adjust such predictions accordingly. An accurate prediction would better determine the risk of the market.

If the secular bull market starts in 2017, the average 20 year cycle would have shortened to 17 years.

Statistically, there are three recessions in a secular bear market. Is it coincident? As of January of 2013, there were two so far. 

Disclaimer.

Invest at your own discretion. This article is only intended for your information to devise strategies. Past successes will not guarantee future results.

Afterthoughts.

·         I predicted a market top on April, 2012 within days.

I’m not sure how accurate are my current predictions. It will be interesting to find out with the following dates Jan. 1, 2017 and Jan. 1, 2020 for secular bull market.

·         Signs of economy recovery.

1.       Increase corporate profits.

2.       Increase employment.

3.       Increase housing starts.

4.       Decrease Federal deficit.

As of 1/2013, #2 and #3 seem improving. #1 is OK. However #4 is not.

When you borrow money (#4), you can improve #1 to #3. I have doubts about this economy recovery.

·         From the Chapter: Storming China Sea.

We cannot afford another war. We've spent $1.365 trillion in the two current wars so far. We cannot visualize how much is one billion, not to mention one trillion. The current tallest building in the world (in Dubai) costs about $1.5 billion. We can build about nine hundred (900, not a typo) tallest buildings in the world and not even fathom of how many jobs would be created.

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(c) 2010-13 Tony Pow

Disclaimer. I'm no responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.