Secular bear market could last into 2010, maybe through 2020
Filed under: Investing
Investors whose retirement nest eggs have taken a beating during the last two recessions shouldn't count on the markets bouncing back any time soon. As several experts have noted, there is mounting evidence that equity markets will be trending downward for a long time.An emergent theory argues that the U.S. is in a "secular bear market," a long period in which equity markets experience flat or declining growth, punctuated by a series of bear market cycles. As the cycle progresses, each bear market cycle lasts longer and descends lower than the previous one, reaching lower and lower market bottoms and taking longer amounts of time to get there.
Historically, there have been three secular bears: the period between 1906 to 1921, the Great Depression period of 1929 to 1949, and the stagflation period of 1966 to 1982. If the current economic climate is, indeed, a fourth secular bear market cycle, the equity markets could experience many upward and downward moves over the next seven to ten years. At the end of the cycle, however, the overall movement of the markets will be negligible. Consequently, for investors who have already lost a considerable amount of money, the prospects for making their money back in the financial markets does not appear promising.
Most analysts say the current secular bear market began with 2000's "Tech Wreck" or "Dot-Com Bomb." The first of several market bubbles to burst in this first decade of the 21st century, it paved the way for subsequent housing and credit bubbles. Unfortunately, the recent recessionary pops probably won't signal the end of the bubble trend. "Secular bear markets come as a result of speculative bubbles, and you don't cleanse a speculative bubble with one bear market cycle," says Barry Ziskin, portfolio manager of Z-Seven Fund (ZSEVX), a global small cap fund.
Ziskin suggests that the bear market cycle that extended through 2002 (after the 911 terrorist attacks) and the current bear market cycle that began October 9, 2007 when the Dow closed at 14,164.53, may be the beginning of a series of bear markets that could take the markets lower than the Dow's March 9 nadir of 6,547.05.
"At the very least we should be looking at three years for this bear market . . . I'd be shocked if we reach the bottom before October of 2010," Ziskin predicted, adding, "and there is no guarantee that this cycle will be the final cleansing cycle before we get to the point where the market will truly recover."
David Rosenberg, chief economist at Gluskin Sheff & Associates shared similar sentiment last week on CNBC's Squawk Box. He stated that, "We're halfway through what I would consider a secular bear market in equities...we have a secular bear market and along the way we hit two price peaks, in 2000 and in 2007."
If the secular bear market started in 2000, "Halfway through" suggests that markets could be flat or trending lower until 2020, leading many investors to wonder how they can make money in this type of bear market environment.
Both Rosenberg and Ziskin say, in this environment, it doesn't make sense to be a buy and hold investor. "The person who adopts a buy and hold strategy in this type of market has their head handed to them," says Ziskin. Both analysts recommend a more active trading strategy, in which investors are willing to sell stocks and turn gains into cash during rallies that can then be used to buy stocks at bargain prices during market troughs. Although the overall trend will be downward, they both say investors should expect several bull market runs during the long-term bear market cycle.
Ziskin is also using a put options strategy, in which he is hedging his trades by buying put options that can cover his losses if the price of equities plunge. He currently has puts on the Russell 2000 small cap index and the Nasdaq 100 index.
"We've got a long, long way to go before this secular bear market is over," he says.
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Reader Comments (Page 1 of 1)
7-13-2009 @ 3:55PM
janscolofsky said...
Can you imagine how messed up your Social Security situation would be now if the Democrats didn't stop Bush's privatization plan? The DOW was around 14,000 when the Republicans were pushing for that.
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7-13-2009 @ 4:47PM
Anna Keppa said...
jansolofsky's memory is flawed. Bush sought to allow younger workers put up to 5% of their current FICA contributions into the market via privatizes accounts. Older workers would not have been affected
Those same younger workers are likely not to get a penny of their SS contributions, since the system is headed for insolvency.
That hasn't changed a bit. Under present circumstances, a young person counting on Social Security for retirement is dreaming.
He'd be better off investing in treasuries.
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7-13-2009 @ 5:29PM
janscolofsky said...
Actually Anna it was supposed to be 4% of their income, not 5% of their FICA, going into private accounts. Would you want to to take all your earnings from 15 days a year (4% of your income) into either the stock market which is now close to 40% lower or interest bearing accounts which are now paying almost no interest?
7-13-2009 @ 5:02PM
Iridium said...
You really have to take a close look at the past 100 years. When you do your eyes will open to the great con that is the equity market system. You’ll see the secular bear markets that are really the economic downturns brought about by the reckless leveraging of the true economy by a few greedy manipulators. The masses suffer for long periods of time while the few enrich themselves to ever greater heights of wealth and prosperity. You see that the good times were really just phantoms with no real substance and that warfare has been used as the tool to generate the false rally to instill the confidence needed in the general population as so they will part with their money in the form of a stock certificate that will be redeemed for nothing in the next financial collapse. Over the past 100 years the true economy, or that of the general welfare of the 50th percentile, has actually been in continuous decline.
1906-1921 The period where the trusts and monopolies were broken which led to the collapse of the equity market. The corporations never should have been allowed to build to the level they were at. In effect the first “Too big to fail” situation. What needed to be done was done and a long period of pain followed. Eventually the economy would have righted itself and been better off. Instead the global economy was beginning to take hold due to global industry and the global leveraging of the national banks. Those who controlled the trusts and in turn the banks manipulated the government of countries and drove them to war. Few families benefited greatly and millions of men died opening up a huge labor vacuum once the war ended.
The postwar labor vacuum coupled with massive leveraging of government infused profits to the wealthy industrial magnates caused a decade of substantial and unsustainable growth. Once the bubble grew to a point where the manipulators decided to cash in on their profits, the bubble was burst through market manipulation and the 1929-1949 Great Depression followed. Fifteen years of flat lining and wartime was followed by 8 years of bubble. The collapse of that bubble would take nearly 20 years and another great war to revert to growth.
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7-16-2009 @ 12:11PM
Nestor said...
Good thing the world ends in 2012
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7-15-2009 @ 4:18PM
Vance Valletti said...
This shows the need for religion in the stock market.
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7-16-2009 @ 6:30AM
Daniel Smith said...
GOLDMAN SACHS BOARD OF DIRECTORS UTILIZING "HOOKED ON OBAMA MATH IN MEETING" ...WE GET 10 BILLION FROM GOVERNMENT ,WE MAKE 2 BILLION, FOOORGEEET THE OTHER 8 BILLION, WE REPORT 2 BILLION WE MADE AS PROFIT.. Can anybody say I just saved the second quarter 09...Bhaaadomp BAAH...well at least the Wall Streeters are excited about it!
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7-20-2009 @ 11:34AM
John Johannsen said...
Goldman Sachs returned the bailout money back to the U.S. Government before the end of their second quarter!