A Bear Market For The Next 15-20 Years?

[Looking4Ward]

I sure hope he's right.

"The first week of 2016 started with a big move down in equity prices as a result of geopolitical events in emerging markets and fears of slowing economies worldwide. However, these and other reasons ignore the larger trends influencing markets today.........We believe the market has begun the next secular bull market that will last another 15 to 20 years."


A Bear Market For The Next 15-20 Years?

 

[nun]

Who knows?

IMHO if the ups an downs of the stock market are cause for concern you should not be retired.

 

[hurricane harry]

could not read

 

[rodi]

What is interesting in the article is that he talks of us being 15 years into the bear market... Or at least that's what the graph shows. (Admitted short attention span, only skimmed article and looked at the shiny pictures.)

So we're at the end, or near it?

could not read

Click through some of the annoying popups, then scroll down and select the article.

 

[audreyh1]

I sure hope he's right.

"The first week of 2016 started with a big move down in equity prices as a result of geopolitical events in emerging markets and fears of slowing economies worldwide. However, these and other reasons ignore the larger trends influencing markets today.........We believe the market has begun the next secular bull market that will last another 15 to 20 years."


A Bear Market For The Next 15-20 Years?

That's a confusing title, since it sounds like he expects a bull market that will last 15 to 20 years.

I couldn't get past the registration pop-up.

Many folks consider that the current secular bear market cycle started in 2000, and since secular bear markets usually last 17 or 18 years, we are far into this one. We are already through 16 of the years (well, almost - March 2000). So maybe a couple of years more?

It's also quite common for the secular bear market cycle to experience 3 bear market episodes. We have already been through two. Some parts of the market - small caps, emerging markets, have already entered a bear market. So this could be the final of the three now.

 

[VFK57]

There are too many economists, financial advisers and other pundits who always predict, advise and direct their readers to purchase or sell some equities, Real Estate, Gold etc. Most of them have no idea where the Market is going to tomorrow, let alone 15-20 years.

 

[Danmar]

There are too many economists, financial advisers and other pundits who always predict, advise and direct their readers to purchase or sell some equities, Real Estate, Gold etc. Most of them have no idea where the Market is going to tomorrow, let alone 15-20 years.

I think most of them think they know where it's going. But they are usually wrong.

 

[NW-Bound]

If I am still alive in 15 to 20 years, I think I will at least be old enough that I will not care so much about the market. The question is whether I have enough to live until then, and I think the answer is yes. Perhaps I may have to cut my expenses some, but I think I have been spending too much anyway. Younger retirees may be more concerned, but my time is running out.

 

[Gone4Good]

I couldn't get past the registration pop-up.

If you're interested, entering a dummy e-mail address seems to work. I used a very juvenile . . . curseword@curseword.com . . . and that appeased the spambot at Kiplinger.

 

[Gone4Good]

I sure hope he's right.

I sure hope so too.

But I'm not sure exactly where the gains for the next 15-20 years are supposed to come from. Domestic large-cap earnings multiples are in the top quartile of their historic average. And corporate profits are right near a record high as a share of GDP.

Normally one would expect stock multiples to be depressed after a "secular bear market." That allows multiple expansion to provide some extra juice to a secular profit recovery. Neither driver (either earnings growth or multiple expansion) seems very likely from where we are right now.

Maybe we're on the cusp of a great technological revolution - A.I., robots, bio-engineering, nano-tech, some kind of actual pay off from big data or streaming cat videos, etc - that will cause earnings to surge ever higher for the next two decades. I surely hope so. Unfortunately historic stock charts probably don't offer any real guidance on the likelihood of those things.

 

[Looking4Ward]

I sure hope so too.

But I'm not sure exactly where the gains for the next 15-20 years are supposed to come from. Domestic large-cap earnings multiples are in the top quartile of their historic average. And corporate profits are right near a record high as a share of GDP.

Normally one would expect stock multiples to be depressed after a "secular bear market." That allows multiple expansion to provide some extra juice to a secular profit recovery. Neither driver (either earnings growth or multiple expansion) seems very likely from where we are right now.

Maybe we're on the cusp of a great technological revolution - A.I., robots, bio-engineering, nano-tech, some kind of actual pay off from big data or streaming cat videos, etc - that will cause earnings to surge ever higher for the next two decades. I surely hope so. Unfortunately historic stock charts probably don't offer any real guidance on the likelihood of those things.

Yes - that. Personally I've been feeling that autonomous vehicles will be the next revolution along with nano medical technology. Those two have the potential to generate hundreds of billions for.....someone.

 

[audreyh1]

If you're interested, entering a dummy e-mail address seems to work. I used a very juvenile . . . curseword@curseword.com . . . and that appeased the spambot at Kiplinger.

Yeah - I did exactly that - smurf@gmail.com LOL!

 

[Gone4Good]

So looking more closely at the article it says a couple of things:

1) Secular bull markets start with a trough of below average P/Es
2) We at Geasphere believe that the breakout in 2013 was the end of the 14-year secular bear market and the beginning of the next secular bull market.

And they include this image of the various secular bear (in red) and bull (in green) markets since 1900.

At the bottom of the stock chart they also show the market's PE-10. And what you see is that after each bear market the PE-10 was below 15x, sometimes much below 15x. Today it is 24x (it's above 25x in the chart which must have been calculated before the recent selloff).

So we've entered a new secular bull. Secular bulls start from below average PE's. But today's PE is at least 60% higher than it was at the start of every other secular bull they identified.

Does not compute.

 

[petershk]

I'm sure it'll look obvious in hindsight

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[HadEnuff]

the real Bull Market will start just as soon as I fully invest in annuities and TIPS. I'll let you know.

 

[Looking4Ward]

Looking at that chart, the optimist in me sees one big bull market that started around 1940.

 

[kcowan]

Secular bulls start from below average PE's. But today's PE is at least 60% higher than it was at the start of every other secular bull they identified.

Does not compute.

You are way to analytical! You have to believe

 

[Gone4Good]

Looking at that chart, the optimist in me sees one big bull market that started around 1940.

The (growing?) pessimist in me thinks economist Robert J. Gordon is on to something when he points out that the truly big innovations that transformed life and business all happened before the 1930's. The 20th century was a period of exploiting those discoveries resulting in revolutionary economic growth. That growth accounts for the bull market you correctly identify.

But will it continue? The 21st century has yet to see anything comparable in terms of revolutionary innovation. Economic growth has slowed accordingly.

That's not to say we won't see a tech revolution as important as those of a century ago in the future. It's just that so far we haven't. And as long as we haven't, it's possible we just might not.

Here's Gordon's paper which I think has been discussed on this forum before. http://www.nber.org/papers/w18315.pdf

And a the relevant argument from his abstract:

A useful organizing principle to understand the pace of growth since 1750 is the sequence of three industrial revolutions. The first industrial revolution with its main inventions between 1750 and 1830 created steam engines, cotton spinning, and railroads. The second industrial revolution was the most important, with its three central inventions of electricity, the internal combustion engine, and running water with indoor plumbing, in the relatively short interval of 1870 to 1900.

Both the first two revolutions required about 100 years for their full effects to percolate through the economy. During the two decades 1950-70 the benefits of the second industrial revolution were still transforming the economy, including air conditioning, home appliances, and the interstate highway system. After 1970 productivity growth slowed markedly, most plausibly because the main ideas of the second industrial revolution had by and large been implemented by then.

The computer and Internet revolution (IR #3) began around 1960 and reached its climax in the dot.com era of the late 1990s, but its main impact on productivity has withered away in the past eight years. Many of the inventions that replaced tedious and repetitive clerical labor by computers happened a long time ago, in the 1970s and 1980s. Invention since 2000 has centered on entertainment and communication devices that are smaller, smarter, and more capable, but do not fundamentally change labor productivity or the standard of living in the way that electric light, motor cars, or indoor plumbing changed it.

 

[HadEnuff]

At any given point there are always plenty of reasons for the markets to go down, along with plenty of reasons why the markets should go up.

When markets go down someone reaches into the first basket and explains "why" this happened, and when they go up the same people reach into the 2nd basket and explain "why" that happened.

And then there are the real market drivers like human emotions, and whether or not there are any other more attractive options for investors. With interest rates this low, there really isn't any great alternative to equities. Until that changes, I think we'll continue to see equities "over-valued" relative to historical measures, but not necessarily over-valued compared to near zero returns on "safer" investments.

 

[Gone4Good]

At any given point there are always plenty of reasons for the markets to go down, along with plenty of reasons why the markets should go up.

Fair enough.

But for those of us looking to history as a guide regarding likely investment performance over the next several decades, it's useful to try to assess the fundamentals of the current investment environment relative to the past.

That's particularly important for those of us using things like FIRECalc to judge our retirement plans. To enjoy the kinds of returns assumed by FIRECalc we have to assume a similar investment environment.

So in 2016 how do we look compared to the 20th century regarding the things most likely to drive investment returns.

Are valuations better or worse than the historical average
Is productivity growth better or worse than the historic average
Are demographic trends better or worse
Is technological innovation better or worse
Is population growth better or worse
Is labor force participation growth better or worse (is it possible for women to enter the labor market a second time?)

One can lay out a case that the 20th century was a pretty remarkable time for investors.

One can also make the case that the future for owners of capital is even brighter because robots. No one can know. But it does seem as if the list of headwinds might be longer than the list of potential tailwinds.

 

[Gone4Good]

P.S. I'm not a perma-bear and wasn't always such a Debbie Downer.

Check the date on this old post against a stock chart.

http://www.early-retirement.org/forums/f28/why-im-not-selling-stocks-now-42977.html

Many of us have been planning on below average stock returns because of high valuations. Well, those below average returns have already been realized and are now in the rear-view mirror. It's time to start raising your expectations for future returns.

 

[NW-Bound]

We already enjoy the benefits of modern equipment and machinery for industrial and agricultural production. Food is really cheap unless you only shop at Whole Foods, gigantic TVs are dirt cheap, and people are throwing away smartphones after a couple of years to upgrade. Gasoline is cheaper than some bottle water. Companies are working hard to generate profits, despite firing old and highly-paid workers.

And now you want more stock gains too? I do not see how more robots and autonomous cars will help. Technological advances will improve the standard of living, but that does not mean stock prices will rise.

Not saying that there will be a long bear market, but I think Bogle is right in saying that the stock market gain will be subdued in the future.

 

[Looking4Ward]

Would not the rise/fall and replacement of mature industries and/or companies in of itself provide intrinsic market gains?

See - I was just practicing to be a talking financial head.

But as a Walmart or Exon matures, aren't gains realized from immature companies? Apple and Google and Facebook and Uber haven't been around since 1940. Who knows who the next ones will be?

 

[NW-Bound]

Yes, disruptive technology will make some companies rich, but at the expense of older companies. But you need to be a good (or lucky) stock pickers. Indexers do not gain, unless it is a rising tide that lifts all boats. The latter is a surer thing that I prefer, even though I do not index.

 

[Gone4Good]

I do not see how more robots and autonomous cars will help. Technological advances will improve the standard of living, but that does not mean stock prices will rise.

In the same way that automation has created wealth for the past ~150 years. Fewer inputs yields more output.