After his brief experiment with technical analysis (well, Killer Waves) uber bear Albert Edwards returns to more familiar ground in his latest Global Strategy Weekly.
Jeremy Grantham of GMO says this is “no market for young men”. Maybe now I am over 50 it is my time! Yet my forecast of the S&P bottoming at 400 is still met with utter derision. I have been underweight global equities since the end of 1996 and overweight government bonds. Meanwhile US 10y bond yields have fallen from 7% to 1¾%, a hair’s breadth from our longstanding 1½% target. Similarly, in my very humble opinion, S&P at 400 is almost inevitable.Edwards says those who take reassurance that the current 12-month forward S&P 500 PE of 10.5 times is cheap are fools, because earnings have peaked…
Always, always remember that the key characteristic of bear markets is compression of the P/E ratio as investors get ground down by the sideways/down action and quit bidding up for earnings. Along the way there will be at least two economic contractions that reduce earnings cyclically but the key is the multiple contraction.
… and a third post bubble-recession is looming as are single digit PE’s....MORE
The 1966-1982 bear resulted in the S&P 500 trading at 7x.
From "This is What a Bear Market Looks Like Folks (now with Voodoo Beach Bunnies)":
...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.”That’s a secular bear market....MORE, including charts.
-Warren Buffett
