Where we might end up

With the cacophony of day-to-day market noise, I find it calming to take a top down view on credit and demographic cycles, where stocks are, where they have been, and where history tells us they should end up at the culmination of this secular bear sometime ahead.

As one of the (apparently) few who have been rather obsessed with controlling outsized risk to capital during most of the past 12 years (other than a bullish spate in early 2003-2006 and early 2009-2010), I personally will be delighted to see the fatal slugs put into this Grizzly.  Rowing safely through volatile, treacherous seas is a lot less fun than sailing after the storm in relative calm.   I am very excited about the prospects for the next organic wealth boom likely to start from once-in-a-generation-lows in stock valuations after this era of such extreme speculation, excessive valuations and insane leverage are finally wrung out of our system (one more time).  Obviously, not there yet.  But everyday I look forward to celebrating that coming opportunity personally and for our clients.

In his Q3 letter this week, GMO’s Jeremy Grantham offered this picture as Exhibit 1 of where he thinks this secular bear may ultimately land the S&P 500 to correct the past 15 years of massive over-valuation. 

Grantham’s chart of the S&P basically coincides with the below big picture chart of the Dow from Ron Griess of The Chart Store via The Big Picture blog today.

My own Technician partner Cory Venable offers a similar top down assessment of the Canadian TSX which appears to be completing the final shoulder of a massive head and shoulders pattern.  Source:  Cory Venable, CMT, Venable Park Investment Counsel Inc.

Historically the right or final downside shoulder is completed faster than the first.  Hopefully that will be the case this time as well.  But this next third recession and bear market of this secular period are likely to achieve significant downside work, despite all the government intervention to arrest the natural correcting process. At that point, we strive to be one of the few who will get there in tact, liquid and truly bullish.  Tom Petty says “the waiting is the hardest part,” but the truth is– not waiting and suffering big loses with the masses is a whole lot harder.  We all must pick our poison.

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7 Responses to Where we might end up

  1. dazzo says:

    Danielle said”…I am very excited about the prospects for the next organic wealth boom likely to start from once-in-a-generation-lows in stock valuations ………”
    Personally I’d like to see some serious transparency and honesty in the financial system as well. Otherwise you’re still buying “crap”. It may be cheaper but it will still be “crap”.

  2. Harry says:

    Incisive and well said. The whole world is flat broke as never before to my knowledge,and there is no creditor protection unfortunately. So from here to there will be a long time coming, as there is no bankruptcy trustee to bring the matter to finality.
    But there will be wealth to be acquired in the markets for those having the time to wait.

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