A 100-year bear market?

[Swaam]

A bit of an interesting thread this one, it's like religion (or anything in life for that matter), you can choose; who you believe; what you believe; why you believe; how you believe; etc, etc, etc. It could also explain why, even though we have the benefit of each others knowledge through forums like this one, we have vastly different investment portfolios.

 

[markrmau]

"I'm as bearish as ever," he said. "I'm all beared up."

Mr. Tice views stocks as being "in a topping process within a correction in a secular bear market," the next phase of which will be propelled by several factors, in his opinion, but especially one.

"We're in a credit bubble that is going to cripple the economy," he warned. That bubble has been driving up prices of assets like stocks and real estate, while interest rates and prices of goods and services have remained stable, creating what he sees as a false sense of economic well-being. We have been here before, he noted.

http://www.nytimes.com/2005/08/20/business/20values.html

 

[reichstag911]

Porper ...

Porper,

I strongly suggest you put the ENTIRE Dow index on a yearly chart and have a good look where we have been and where we ARE going.

All charts have retracements including VERY LONG TERM ones.

It's not a case of if this happens: it's just when - and the current Neo-Con junta are currently doing their very best to ensure they replicate the Roman Empire's demise with their aggressive imperial hegemony : )

It's a no brainer for those who have seriously studied all this.

fwiw my LONG TERM Dow/S+P says the party really starts early next decade.
(no it's not based on E.W.)

 

[Porper]

Re: Porper ...

Porper,

I strongly suggest you put the ENTIRE Dow index on a yearly chart and have a good look where we have been and where we ARE going.

All charts have retracements including VERY LONG TERM ones.

It's not a case of if this happens: it's just when - and the current Neo-Con junta are currently doing their very best to ensure they replicate the Roman Empire's demise with their aggressive imperial hegemony : )

It's a no brainer for those who have seriously studied all this.

fwiw my LONG TERM Dow/S+P says the party really starts early next decade.
(no it's not based on E.W.)

You are certainly digging up old posts now, I haven't posted on this thread for almost a year.

I have never said that the Dow wouldn't retrace or the world economy won't go into recession. I from memory said that the Dow will not hit 400.However you interpret charts, you can't honestly expect anybody except a doom and gloomer to think this will ever eventuate.

Getting into the real world for a moment, debt is the biggest problem, whether it be countries or the individual, this needs to be addressed now otherwise a tiny percentage of what you predict may come true, but let's not exagerate too much, please. :silly:

 

[DTM]

Here is a link information about Kondratyev waves. Very interesting stuff I must add and a must read. Basically he outlines 50 year cycles of boom and bust and seems very accurate because it takes into account political and population growth and determination of mood. Looks a bit like Elliot waves to be honest but I'll leave that judgement to yourselves.

http://www.kondratyev.com/reference/theory_explained.htm

Make of it what you will but a MUST READ because some of the things he mentions are

quote:

"Accompanying growth is a shift in social demands. As wealth is accumulated and new innovation introduced great upheavals and displacements take place. The process of social unrest builds with growth culminating in massive shifts in the way work is defined and the role of the participants in society."

and then

"Primary Recession

Eventually, the continuation of exponential growth reaches its limits. Excess capital produces a shortage of key resources and the economy enters a period where growth creates a shortage of resources. An economy will only support expansion to the limits of its resources, both human and material.

The mood of affluence also brings a change in attitude towards work. As an economy gets closer to its limits inefficiencies build up

The imbalances of this period have been historically exaggerated by what can be labeled a "peak war". Examples such as War of 1812, the Civil War, World War I and Vietnam, came at the end of a very affluent period. These Wars produce strains on the economy increasing the impact of inflation. A dramatic drop in output, rapid rise in unemployment and unusually severe recession characterize this period. Although this primary recession is short lived lasting only three to five years, it is key in altering perceptions and the structure of the economy. No longer does excess create an abundance. The "Limits to Growth" now define a maximum level of economic activity that traps the economy into consolidation and tight bounds for the next 20-25 years. With the change comes a conservative shift in the popular mood reinforcing the limits."

Anyway, interesting stuff from a Russian who died in 1938.

 

[DTM]

Something else that might be of interest.

By Stephen Schurr, Financial Times
Published: August 17 2005 20:30 | Last updated: August 17 2005 20:30

Sid Klein has built a career on calling the turning points in the US and Japanese markets. He proclaimed in late 1989 that the world should short Japan.

In January 2000 he said the US bull market was over and stock prices would halve. In October 2002, he called the US market's bottom almost to the day.

Now, the investment adviser and publisher of the Japan Asia Investments newsletter says he is "pounding the table" once again, and investors in the US and Japan should prick up their ears.

Mr Klein tells the Financial Times that the Dow Jones Industrial Average "has the potential for 6,500 in 2006", nearly 40 per cent below current levels.

Based on this, he suggests the easiest way to hedge or profit is to buy 18-month puts on the Dow, a bearish options trade similar to the call he made on Japan in 1989. Even more interesting is his recommendation as the port in the storm for investors: Japan. Or, more specifically, Japanese value stocks that are focused on the domestic economy.

To back up his bearish call, Mr Klein points to many of the same signs he relied on in 1989.

The principal one is valuation. The US stock market, Mr Klein maintains, sports a price-to- earnings multiple that has become unmoored from the underlying earnings growth.

He says a p/e of 18 makes no sense in the post new-paradigm era of declining interest rates. If stocks stopped trading at a premium to the forecast growth rate, the Dow would easily fall to between 7,000 and 8,000.

Valuation rarely serves as a catalyst for a major downturn, but Mr Klein sees other candidates. The price of oil is one. Since this spring, he notes, US equities have not followed their usual pattern of moving in the opposite direction to oil.

Unless crude prices suddenly collapse, a correction should be forthcoming. Another possible trigger is slowing growth in China, which could translate into more muted purchases of Treasuries; this could spell higher interest rates and a slowing economy in the US.

(Speaking of China, Mr Klein construes Beijing's tip to its citizens to buy gold as another ominous sign.)

Mr Klein says investors should be less concerned with identifying the trigger than with positioning themselves for the correction.

 

[wayneL]

The interesting thing about the paralell between kondratief and elliott, is that they both made their hypothoses independant of each other....from either side of the iron curtain.

I just think that lends a bit of credence to both of these gentlemen.

Cheers

 

[DTM]

Something else that might be of interest.

The principal one is valuation. The US stock market, Mr Klein maintains, sports a price-to- earnings multiple that has become unmoored from the underlying earnings growth.

He says a p/e of 18 makes no sense in the post new-paradigm era of declining interest rates. If stocks stopped trading at a premium to the forecast growth rate, the Dow would easily fall to between 7,000 and 8,000.

Valuation rarely serves as a catalyst for a major downturn, but Mr Klein sees other candidates. The price of oil is one. Since this spring, he notes, US equities have not followed their usual pattern of moving in the opposite direction to oil.

Unless crude prices suddenly collapse, a correction should be forthcoming. Another possible trigger is slowing growth in China, which could translate into more muted purchases of Treasuries; this could spell higher interest rates and a slowing economy in the US.

(Speaking of China, Mr Klein construes Beijing's tip to its citizens to buy gold as another ominous sign.)

Mr Klein says investors should be less concerned with identifying the trigger than with positioning themselves for the correction.

The other trigger of course is hurricane Katrina as dubbed "the perfect storm in the world economy" as outlined in the SMH.

quote:

http://www.smh.com.au/news/business/world-braces-for-the-ripple-effect/2005/09/02/1125302739843.html

World braces for the ripple effect
September 3, 2005

Katrina may start a perfect storm in the world economy, write John Garnaut and Los Angeles Times reporter Evelyn Iritani.

It's easy to think the full impact of the oil crisis is half a world away, where American motorists are paying double what they were three years ago for petrol, after the Gulf Coast was ravaged by Hurricane Katrina.

But the implications are far more global, and more complicated, than that. The most acute economic impact is being felt closer to home.

It is being felt by people such as Indonesia's President Susilo Bambang Yudhoyono, for example, whose year-old government faces a choice between ending fuel subsidies and risking serious political instability, on the one hand, and fiscal bankruptcy and a return to financial crisis on the other.

In Thailand, fuel costs are choking the economy and growth forecasts have been slashed by half. And high oil prices are forcing China's state-owned companies to start shopping for foreign oilfields, sparking new Sino-US rivalries.

Analysts are wondering how the world will be changed by the transfer of an extra $US100 billion ($130 billion) in oil payments from the West, Asia, eastern Europe and Africa to the Middle East and Central Asia.

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AdvertisementAnd this week's record New York oil price of $US70.85 a barrel has probably arrested the global hike of higher interest rates as the US and China, the world's two great growth engines, face their most serious economic tests in years.

In Australia, where record petrol prices have thus far been greeted by an eerie calm, financial markets are flirting with the thought that this oil crisis will lead to a crunch for commodity prices, after an initial surge - as has happened with oil shocks that have gone before.

"One reason the [Australian] dollar dropped below US75c was markets were worried that high oil prices would hurt economic growth, and therefore demand for Australian commodities," says Peter Jolly, head of research at National Australia Bank.

Until now, however, the country's top policy makers have cautiously distinguished this oil crisis from its 1970s predecessors - which were mainly caused by the oil cartel simply turning off its taps.

In his latest public appearance, Reserve Bank governor Ian Macfarlane said the oil price rise was happening because "the world economy is just growing so fast".

He argued the impact on consumers had been muted by the exchange rate, saying Australia would benefit on the whole, because it is a net energy exporter.

"There is enough similarity between oil prices and the prices of other hydrocarbons like coal and gas that when the dust settles, we gain more in income than we pay out in extra expenditure because of the higher price of oil," Macfarlane told a Parliamentary Committee on August 12. "For the country as a whole, the oil price shock is not directly harmful.

"It is only harmful in so much as it might cause the rest of the world to slow down; but it is not harmful to our industries. If you add up all of the industries, the ones that benefit, benefit more than the ones that lose."

High oil costs played no small part in this year's enormous coal price rises for BHP Billiton and Rio Tinto, as Chinese industry shifts away from small diesel power generators to massive new coal-fired plants.

Oil prices are also linked to huge gas and uranium price rises, and even the Government's opening the way for new uranium mining and exports to China.

The oil price surge is part of the wider commodity boom - which is more of a boon to Australian miners than a tax on consumers. "Most of the same reasons that oil is flirting with $US70 a barrel are the same reasons that coking coal is $120 a tonne - Australia is taking a lot with one hand and handing [some] back with the other," says Chris Richardson, a director of Access Economics.

But, as Macfarlane also warned in last month's parliamentary appearance, there will be a point where even Australia's energy-exporting economy will begin to hurt.

"At some point, it clearly does become important, and then the interesting issue is the policy response," he said.

That point seems to have arrived this week, in the form of a hurricane.

"It's clear that the short-run effect is now unambiguously negative," a senior policy official told the Herald on Friday.

"It's getting a bit scarier now."

One remarkable thing about oil prices now, compared to previous surges, is that markets expect prices to stay this high for most of this decade.

And for the next six months the oil futures market is in an unusual state of "contango", with prices rising for deliveries for each month until March.

Regina Schleiger, an economist with well-connected interest rate analysts Medley Global Advisers, says it is wrong to talk about an oil price shock, or spike, because those terms connote a temporary phenomenon.

Global demand is so strong, and supply so limited, that oil prices will have to rise far enough to choke its own demand, in a brutal self-correcting cycle, Schleiger says.

"That means 'demand destruction' - a polite way of saying a sharp economic slowdown in the world's key growth engine economies - becomes the only means to bring prices down," she says in a recent client report.

And that was before Hurricane Katrina.

Beyond the enormous human cost and dislocation, Katrina has pushed oil rigs across the Gulf of Mexico and smashed eight Gulf Coast refineries out of production. That stretch of coast produces one-third of US oil.

Average petrol prices have jumped US55c towards $US3 a gallon (a gallon is about 3.8 litres) in a week - unprecedented in the US experience.

Ben Bernanke, who recently left the Federal Reserve to advise the US President, George Bush, told Bloomberg that American consumers should expect to pay $US3 a gallon or more for at least "the next six to eight weeks".

He noted oil futures markets project petrol prices will average $US3.25 a gallon this month and a similar price for October.

Global markets have spent little time pondering the appropriate policy response to this type of demand shock.

Unlike in the 1970s, when central banks raised interest rates to curb oil's inflationary effects, investors are confident Federal Reserve chairman Alan Greenspan will halt his "measured" march towards higher rates - immediately.

"There's no way in the world the Fed's going to hike rates again in the near term," says Rory Robertson, debt market analyst at Macquarie Bank.

"The one thing we know is [oil] is negative to growth. What we don't know is whether the damage is modest or massive."

Markets across the world judge that inflation and wages are compliant, leaving central bankers to deal with oil's dampening effect on demand and growth.

"In the space of two days we have seen one of the biggest reassessments of Fed policy I've ever seen," says Jolly, at NAB. "They have taken out 1 ½ rate hikes in the past 24 hours."

Yields on two-year US government bonds tumbled this week to 3.7 per cent, suggesting that the official 3.5 per cent rate will remain broadly where it is for the foreseeable future.

Australian bond yields have tumbled even faster, responding to diminishing growth prospects across the Asian region.

The export-led growth prospects for the Asia-Pacific region, including Australia, depend on how the oil crisis plays out in Indonesia, Thailand, Japan and, above all, China.

The Asian region demands more oil but produces less than other economic centres. Countries such as Japan and Korea import 100 per cent of what they consume.

"The Asian region consumes three times more oil than it produces," says Richard Grace, an analyst at Commonwealth Bank.

"They're under a little bit of pressure now."

Economic growth in the Asian region is far more oil intensive than the global average, largely because of China's early stage of industrialisation.

The global economy has typically grown three times faster than oil consumption, but the dominance of Chinese growth last year dropped that ratio to 1:1.

Skyrocketing oil prices are "a heavy tax on most Asian economies", says William Overholt, director of Rand Corp's Center for Asia-Pacific Policy.

Asian governments are taking steps to cushion the economic effect of energy costs.

Some have imposed emergency energy restrictions in hopes of avoiding more draconian, and unpopular, price hikes. Filipino workers have been ordered to take three-day weekends. Japanese salarymen are wearing short-sleeved shirts and abandoning their ties so they can turn off their air-conditioners.

Ifzal Ali, chief economist at the Asian Development Bank in Manila, says those steps have simply delayed the pain for countries such as Thailand and Indonesia, which will experience much slower growth in 2006.

"Countries have been in denial, and now it is gradually sinking in that this is here to stay for the foreseeable future," he says.

As oil prices have risen, many Asian governments have spent billions of dollars to avoid raising prices for kerosene and other fuel.

But those expensive subsidies are eating away at governments' reserves and forcing them into debt to maintain them, says William Belchere, chief Asia economist at Macquarie Securities in Hong Kong. "At some point, that will begin to grind into their economies," he says.

That has already happened in Thailand, which was forced to abandon price controls on diesel fuel this summer after spending $US2.5 billion in subsidies, says Eugene Davis, managing director of Finansa, a Bangkok investor group. He says the government's mishandling of the energy situation has contributed to a loss of investor confidence and put pressure on the currency.

Davis says Thailand's growth could slow to 2 per cent this year, less than half its projected level.

Elsewhere, high oil prices are extracting a political price.

In Indonesia, there were nationwide protests this spring when the government raised fuel prices to cover soaring energy costs. Indonesia's kerosene and petrol price ceiling means the government directly pays the bill above that point.

The subsidy policy was difficult to fund eight years ago, when Indonesia was a net exporter and oil prices were a third of what they are now. The International Monetary Fund even used the issue to help shoe-horn president Suharto off his 30-year pinnacle.

But the Indonesian government recently warned that fuel subsidies could double this year to $US15.3 billion if prices hold at current levels - an astonishing 5 per cent of GDP.

"The subsidy is now worth six times the combined central government expenditure on health and education," says Professor Hal Hill, economist and Indonesia expert at Australian National University.

"[President Yudhoyono's] first term administration will be judged by how he handles this," he says.

President Yudhoyono this week postponed outlining reforms until next month, as the rupiah resumed a deep fall.

In India, where state-owned energy companies are running huge losses, the government will soon be forced to raise fuel prices, says Amitabh Dubey, an analyst at Eurasia Group in New York.

He predicts energy will be a hot issue in next year's elections in the communist-controlled states of Kerala and West Bengal. "There will be political instability," he warns.

Energy prices also have become a problem in China, where fuel prices are heavily subsidised, says Jason Kindopp, a China specialist at Eurasia Group. Last week, the government dispatched extra police to Guangzhou after service stations ran short of petrol and motorists were forced to endure lengthy waits and rationing.

Kindopp says the shortages occurred because some of the state-owned refineries have trimmed production or exported their petrol because they were tired of operating at a loss under the government's strict price controls. Since the start of the year, retail petrol prices in China have risen by 15 per cent, while global oil prices have risen by 50 per cent, he says.

To avoid future shortages, the Chinese government may have to raise retail prices, which not only will be politically unpopular but also will stoke inflation and put a brake on the economy.

"It'll certainly have a dampening effect," Kindopp says, "because so much of what is driving China's economic growth relies on low-cost inputs."

 

[wavepicker]

I think many are missing the point of what Prechter has done here, and the point Wayne is expressing. He has looked into history and found that people are people whether today or 100 years ago, and that emotional manifestations of fear, greed and hope is what the markets really all about. These human traits have not changed throughout history and never will. People today are repeating the same mistakes their ancestors did in the markets 100 years ago.

If we look into the history of markets we will see that:

- major historical events do not significantaly influence the stock market over the long term.
-Very little stock price change is random in nature
- smooth, underlying trends are a result of mass psychological views of investors/traders coupled with fundemental factors related to the growth of the economy and of specific industries and companies

A chart of the DOW or any market today displays similiar characteristics in terms of patterns and patterns of the trend when compared to one of 50 or 100 years ago.
Why?

In 1990 when the Nikkei 225 was 40,000 every man and his dog was pouring money into Japan "Into a sure thing" saying Japanese manufacturing processes would revolutionize the world. If you said that the market would fall to 8000 13 years later then you would be called a looney BUT IT DID!!

If you said the same thing about the Property prices in Japan falling from a median of $1.3 million to $375000 in 10 years you would be called a looney BUT THEY DID!!

The same happended in Hong Kong !!!

I was called a looney by friends in April of 2000 saying that the nasdaq would capitulate to 1000 from 5000."This time it's different they said, new economy hype, BUT IT DID!!! Just like everyone is raving on about Chinas thirst for resources today. Who knows what tommorow holds?
What caused all of the above to crash? It was not wars or natural disaster etc

Yes 400 points on the Dow does sound unrealistic and I too would never beleive it, but 3000 or even 4000? Hey as history has proven anything is possible Best to stay open minded and and not get caught up in mania trends

Good luck to all

 

[WaySolid]

Markets do tend to like doing the unexpected.

Articles and websites supporting your particularly conspiracy theory (mega bull or mega bear) are like grains of sand on the beach. Read a few goldbug websites or peak oil sites and you will be stocking up on canned food and blankets for your bomb shelter. You can always find something to feed your bias on the net.

I follow US sentiment via trade blogs and the view there is just bleak. One fundy I particularly like is in NZ at the moment scoping out investment opportunities in our neck of the woods.

My take on the markets is that the US property market might be close to a correction, there has been selling in the areas that have seen large speculative growth recently by people who have a track record of decent market timing.

Where will the flow of liquidity and boomer money go then? Not long till retirement now.. My guess (thats all it is) is that there will be a really nice bull market in US equities in 06 and 07. A similar scenario has unfolded in our markets 03-05.

One key point I would make is it's ok to be negative but don't let it stop you investing.

 

[wavepicker]

who ever said anything about stopping to invest anyway? There are mega opportunities out there both in bull and bear markets

 

[WaySolid]

Well my view on a US bull market has yet to eventuate almost a year on.... The DJ is near record highs, but in inflation adjusted terms it's yet to do anything worthwile.

I might have some crystal ball glass to eat on that particular prediction, thought there is just the sort of negativity around at the moment that would be perfect for a Harry Dent 36k Dow surge, though that is looking increasingly fanciful the closer we get to 2010. In the meantime Harry can continue picking up his 100k speaker cheques and spreading his brand of wisdom. Wonder if Prechter gets paid more or less being a perma bear? Or do Perma Bulls make all the money?

I have had real CG in my property (just by sitting and doing nothing) in Bris and the GC over the last 2 years, and of course Aus stocks have done ok over that same time period, so if you were the sort of person to let the perma bears scare you then you wouldn't be the happiest person around at the moment.... Though the next crash is getting closer day by day..... beware... of unescessarily negative sentiment I say. Just invest the best you can anyway.

 

[Ageo]

well as long there is an economy and a stock market quite frankly i dont care which way it goes.

Although a bear market would mean expenses get reduced big time.

so it would most likely benefit me more hehe.

 

[Captain_Chaza]

This was a good read!!

Crikey! "What a title!"

Salute and Take Care