We have been in a bear market for over 11 years and it could be many more before it bottoms.
Your post made me think about Zeev's prediction 10 or more years ago about entering a 15 year secular bear market. I went looking for one of his posts, didn't find the one that I vaguely remember as being spot on, but did find this one. Still a useful reminder. That guy was one of a kind.
To: limtex who wrote ( 91892) 7/6/2002 11:52:44 AM
From: Zeev Hed Read Replies (3) of 99277
limtex, you are going to get yourself into financial ruins if you continue and stick with the concept that a growing economy means a rising stock market. Go back to my April 2000 post (#reply-13483082) where I suggested a parallel between the current period and the 1966/82 period, and thus a lengthy period of a trading range, a broad trading range. The economy grew twice as fast from 1966 to 1982 as it did from 1982 to 1999. Yet, stocks went nowhere in the 66/82 period and grew by a factor of 10 in the 82/99 period. Have you asked yourself why for 16 years there was a disconnect between a growing economy and stock prices, and then another disconnect in the 82/99 period? It is "the valuation, stupid". We started the 82 period with stocks extremely undervalued, and then went to extreme over valuations in early 2000. We are still in the area of overvaluation here, and earning will have to grow by quite a lot to justify current valuations. You got to accept the fact that we are only in the third inning of this secular bear market, which will, eventually, bring stocks to extreme under valuations. That will happen after most people will be so disgusted thoroughly with the market that they are going to throw in the towel, the bottom of the secular bear will not be a "bang" with 5 or more GNT's, it will be a whisper with months on months of puny volume, a stretch of possibly a week at the end, when not a single issue register a new 52 weeks high (in August 1982, we had about 2 weeks where not a single issue registered a new high on the NYSE). Get this into your mind, the economy has less to do with stock prices than valuations, market psychology and liquidity. My advice, don't look for multi baggers, these will be rare and far in between in the next few years, anytime you can grab a 50% plus move in a stock, consider yourself fortunate and take it.
EDIT:
Found another one--actually, it is the one referred to above, his April 2000 post. The paragraph that I bolded at the end is especially uncanny. Well, I may as well put it here if people don't want to read the whole thing:
Once the three forces cited above combine to break the bullish psychology of the market, then we could be ready for a bear market, and not a three months severe correction. These are some of the major reasons my long term outlook is a market locked in a trading range of 6000 to 13,500 on the Dow and possibly a range of 1900 to 5200 on the Naz. It will take a good many years (five to ten, maybe 16 like in the 1966 to 1982 period?) before the growth in earning finally catches up with current valuations.
That was when we were still in the Internet bubble in April 2000. Like I said, one of a kind.
To: Crimson Ghost who wrote ( 47738) 4/23/2000 11:30:00 AM
From: Zeev Hed Read Replies (4) of 84056
George, I did not respond to you on Don Hays' prediction of a Naz at 1400 before the end of this year. I believe that Don contradicts himself, in one place he is forecasting a huge bear market, but in essence assumes the bottom will be reached quite rapidly, that is not how bear markets and changes in psychology traditionally evolve. Psychology takes a long time to change (as Don himself notes), and psychology by itself needs a nudge from either the economic or the monetary environment, but preferably, both. Now, we have had the nudge from the monetary environment for quite some time, but I do not think that so far it has affected liquidity much. Yes, some measures of money supply have contracted (or actually, I should say the growth rate has contracted and in some cases, become negative, but the actual aggregates are still above the levels of a year ago). The problem is that we are a much more open world economy than in the past, and until the bulge in liquidity injected by the liberalization of the Japanese Postal system is absorbed (and that may take a good additional six months), the efforts of the FED's will only be partially successful, IMTO.
I can summarize my "thesis" of a continuation of the bull market, past the next nadir (probably late May for a new low on the NAZ?) till about November or year end and a bear market next year based on few basic principles:
Political:
a. Election year, the current government has a lot of freedom of injecting liquidity into the market so as to create the "good feelings" required for them to stay in power ("it is the economy, stupid" still works). That will be in effect over the next few months once the campaign resumes in earnest. That effect will be absent after the election.
b. Recognition by any new administration (R or D), that market excesses must be wrung out of the system, and it is best to take the bad tasting medicine early in the four years cycle.
Economic: (just two, there are many more, including housing slow down, car market saturation etc.)
a. This year's earnings will still look pretty good as compared to last year due to the extremely high growth rate of the economy in the past few quarters. Next year's comparison to this year will be difficult, as the growth rate slow down induced by the Fed, finally takes its toll on earnings.
b. The BTB ratio of the Semi equip sector often peaks few months before the whole chip sector peaks (first the equip makers than the chip makers themselves), it has reached 1.44, which i believe is a record high, it cannot go much higher than that. Thus I get a peak in the equipment sector sometime in the second or third quarter this year, followed by a peak in the chips and the rest of technology late this year or early next year.
Liquidity:
The FED's efforts to soak liquidity are currently balanced domestically by the budget surplus (I know many believe it is a phantom surplus, but the fact remains that the treasury is in the market buying long term treasuries), as the economy slows, these excursions by the treasury will wane. This current excess liquidity coupled with excess liquidity discussed above, will fuel the "last gasp" in this Bull for a good two to three quarters, and after that, will dissipate.
Valuation: there is no question in my mind that current valuations by any historical standard are high, but I do not know how much higher they could go (the Nikkei at its top sported a PE of 80, and many claims that due to Japanese accounting principles, these PE were understated and were actually much higher, so a PE of "75" as Hays claim, may not be the peak of the mania.
Once the three forces cited above combine to break the bullish psychology of the market, then we could be ready for a bear market, and not a three months severe correction. These are some of the major reasons my long term outlook is a market locked in a trading range of 6000 to 13,500 on the Dow and possibly a range of 1900 to 5200 on the Naz. It will take a good many years (five to ten, maybe 16 like in the 1966 to 1982 period?) before the growth in earning finally catches up with current valuations.
Zeev
PS, having said all this, I still will be looking at the technical underpinnings for actual timing and corrections to this broad range view of the markets (VBG). You got to remember, those turnips reserve the right to be wrong, change their mind, and change their mind often. |
