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.
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.
------
My e-book Debunk the Myths of Buffett could save you a lot of money.
http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html
(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.
