Tuesday, July 6, 2010

Bull Markets; Bear Markets; Secular and Observant

This is a repost/mashup of a couple points that bear [good one -ed] repeating. No bull [lame-o -ed]
...Secular bear markets are characterized first by the initial decline and then by P/E multiple contraction.
During the last secular bear, 1966-1982, the cyclical bear of '73-'74 had a S&P 500 trailing four quarters P/E of 6.97 for the quarter ending 9/30/74 while the '80-'82 cyclical had a P/E low of 6.68 for the quarter ended 3/31/80. One of my favorite Warren Buffett quotes:
December 31, 1964: DJIA 874.12
December 31, 1981: DJIA 875.00
“Now I’m known as a long-term investor and a patient guy, but that is not my idea of a big move.”
-Warren Buffett
That’s a secular bear market.
The Big Picture had a Morgan Stanley chart we lifted in August '09:

The Chart represents typical secular bear markets based on MS’s sample of 19 such bear markets as shown after the jump....

Here are a couple more charts showing other aspects of the phenomena
Where in the Bear are We?
Dow Chart with P/E, 105 Years
click for larger chart
Source: Crestmont Research
One etymology of the word speculation:
c.1374, "contemplation, consideration," from O.Fr. speculation, from L.L. speculationem (nom. speculatio) "contemplation, observation," from L. speculatus, pp. of speculari "observe," from specere "to look at, view" (see scope (1)). Disparaging sense of "mere conjecture" is recorded from 1575. Meaning "buying and selling in search of profit from rise and fall of market value" is recorded from 1774; short form spec is attested from 1794. Speculator in the financial sense is first recorded 1778. Speculate is a 1599 back-formation.
That is not the etymology grandmother taught me. Hers had to do with Italian merchants keeping watchtowers manned to spot sails over the horizon, enabling those who could see furthest to sell off inventory before goods-ladened ships made harbor and crashed the market. More like this etymology at Wictionary:
From Latin speculātus, past participle of speculor (look out), from specula (watchtower), from specio (look at)
Either way, the current market does not lend itself to either contemplation or seeing over the horizon....
**From Investing the Middle Way (2006):

Source: Profutures, click to enlarge

Death of the American Dream? (nah)

Markets: Is This Bull Cyclical or Secular?
Best strategy for long bear market 2010-2020
Gail Dudack on What's Ahead for the Stock Market
Stock markets – secondary or primary bull?

 and here's ELO: