This secular bear seems alive and well

For the past several years, I have been writing about the likelihood that world stock markets entered a long secular bear cycle in 2000. In history these secular bear cycles have always followed long secular bull cycles and have averaged about 17 years from start to finish. The last secular bull cycle was 1982 to 1999. I thought it likely that this secular bear started in 2000.
When stock markets moved up from 2002 to 2007, I received many comments from people who took issue with the secular bear thesis: “stocks have been moving up for 5 years, so how could we be in a secular bear?”
The fact is that the cyclical bull in stocks during the expansion phase of the business cycle from 2002 to 2007, did absolutely nothing to negate the probability that we were and are still within a secular bear climate that could last another 7 to 10 years.
This big picture secular thesis is so far reinforced by the following three charts:
The Dow Jones Index has been range bound since 2000:
Dow Jones Industrial Average ten-year chart 1998-2008
The S&P 500 has fared even worse, now down more than 30% from its last cycle peak over 8 years ago:
S&P500 Large Cap Index ten-year 1998-2008
Both of these broad market indices have been harder still on Canadian investors who suffered further declines exasperated by the falling US dollar for 7 years to 2007.
The TSX Composite after much thunder and flash, and in its typically lagging pattern, is now falling back to retest its 2000 peak:
TSE ten-year chart 1998-2008
Why do we care about this?
We care because this means passive equity investors have suffered incredible volatility for the past 8 years and have had negative real returns for their reward.
We care because during secular bear climates, cyclical bears like the one that began in 2007 tend to last several months longer and drop considerably further than bear markets during a secular bull phase.
We care because buy and hold investors have been hurt over the past 8 years and their pain is likely to continue for several more years. We care because the long-always investment industry doesn’t seem to give a damn.
Its not that investors cannot make gains during a secular bear climate, its just that someone has to be focused on keeping those gains each business cycle. Sucessful strategies must be tactical about protecting capital from the end of cycle declines.

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3 Responses to This secular bear seems alive and well

  1. Anonymous says:

    Hi Danielle. Happened upon your book Juggling Dynamite. Enlightening. I realize that we have been brainwashed by the Mutual Fund Co's to buy and hold, and make regular contributions. This is solely for the benefit of the mutual fund compaines so they have a steady commision and fee income stream. As you reveal, there are times to be in stocks and a time to divest.
    I have also read Unexpected Returns. Hard reading but also enlightening. The author demonstrates why the highest the PE ratio for the S&P 500 can be is 25 (other than a speculative bubble). On Sept. 4, 2008 it was 25.8. Very unlikely that stock prices would move up from here. Most likey to move down or sideways. Time for bear market strategies, to preserve capital, and wait. Very hard for myself as I am not a patient person, but all the great investors, T.Row Price, Philip Fisher, Warren Buffet, all trumpet patience.
    Two questions I was hoping you can answer.
    1. Will you be releasing a new book?
    2. What is the best book, or books to teach oneself technical analysis.
    Keep up the good work. Ricky

  2. Anonymous says:

    Thanks for the Post Ricky. Yes I am working on a new book, but not likely to be out for at least a year at this point.
    I think great first books for technical analysis are Martin Pring, Technical Analysis explained, and John Murphy, “Intermarket analyisis.” You can see the link to both on my recommended reading list. D

  3. Anonymous says:

    Hi Danielle,
    What a confirmation of the dangerous market we're in!!
    Glad to hear you're writing another book. I would imagine more people will believe your assessment of the industry this time around.
    Paula

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