Investors and pundits who have been trained by the last twenty years that every stock market decline is a sure-fire money making opportunity are chatting up the notion that we have seen the bottoms and this is a gold-plated moment in history to snap up stocks at bargain prices.
Unfortunately, 20 years of personal experience is not long enough to experience in one’s bones the true time scale of stock market patterns.
We’re in a secular bear market. In this usage, “secular” means “long term.” Over the past 100 years, the average secular bear market has lasted about 13 years or so. This secular bear began in 2000, or, arguably, 2001. The current state of devastation for the global financial system does not bode well for a shorter-than-average duration of this secular bear. One ought to expect the long-term negative stock market conditions to persist for another 5 to 10 years.
Now, from 2003 to 2008, we experienced a CYCLICAL bull market, still within the context of the long-term bear market. This cyclical bull market was of extraordinarily long duration. A more typical duration for a cyclical bull move during a bear market is 1 to 2 years.
So, now we have clearly entered a cyclical bear move. How long will it last? Again, the historically typical duration is in the range 1 to 2 years.
Here’s one thing I’m reasonably confident of: we won’t be entering a cyclical bull until there is at least talk of the Fed boosting short term interest rates.
I’ve said many times that Japan’s horrible experience beginning in the 90s is a good analogue for our current situation. Japan’s central bank cut its rates to zero and kept them there until pretty recently. Could we see a decade of economic contraction? I really don’t think it will last that long, but I do think we’re in for several years of very tough sledding.
So, we may have seen the bottom. But, we may stay here for several years. This is not a buying opportunity.
The bear market move from top to recent low was about 40%. I think there’s a very good chance the final move from top to bottom will be more than 50%.
Here’s another set of signs to watch for, to tell you when we’ve reached the bottom:
- when everyone knows that only a fool buys stocks
- when Jim Cramer is off the air
- when Business Week’s cover proclaims the death of the stock market
- when the FedGov passes legislation banning the investing of pension and retirement funds in the stock market
I like this last one particularly. Recently, the FedGov passed legislation REQUIRING 401k administrators to invest new contributions in the stock market for participants who did not specify an investment choice and who were about 50 years old or younger.
The key right now is not so much how to make money with your savings. The key is not to lose your savings