Sunday, February 13, 2011

My Take On Where The Market Is Headed

I have maintained for the last couple of years, even during the Great Recession, that we are still in a multi-decade secular bull market.  Many people think that we're in a secular bear market that supposedly started in 2000 and that is why they are looking for the market to drop further until we get a historical P/E of 7 or so.  I don't think we were ever in a secular bear market the last 10 years, so I don't think you should wait for Dow 4000 to get a P/E of 7.  Here is a telling chart on why we were not in a secular bear market:

(chart generated by

If the market was indeed in a secular bear market that started in 2000, I don't think we would see a breakout as we are seeing now.  This breakout means the market was just "basing" (consolidating) for 10 years, and now getting ready to continue the long secular bull market.  The strength of the next move is proportion to the length of consolidation.  In other words, the market that is coming out from a 10-year basing pattern (an exceptionally lengthy base) is going to explode to the upside for a period of years.

Within the multidecade secular bull market (I believe started in the 1980-early 1990), there obviously will be cyclical bear markets in between. The last 10 years weren't all fun for the bulls (or bears in 2003-2007 and 2009-2010) -- there were cyclical bear markets and cyclical bull markets. Many people who bought stocks back in 1980's and early 1990's made a lot of money, even if they kept the stocks the last 10 years. They made a lot of money and their long term portfolios still did very well. This is consistent with secular bull markets.  What all the grieving is from are those who bought during the end of the internet bull market as well as those who bought before the 2007-2008 collapse.

How do I know that we're on the verge of another huge bull market? I learn to ask the question, "What does our government want (in terms of technology) for Americans to have so America can continue to achieve prosperity and be the nation of the world's envy?"  

Back in early 1990s, our government wanted us to have the internet. Did it think we would achieve increased productivity and prosperity if we build up the internet and most Americans get access? Yes! The government knew; after all, the internet technology was already being used within the military. So that's why Al Gore claimed that he invented the internet; he pushed hard for funding.  To get internet to the masses, the government needed to fund it. And it did that via the money supply.  Most of the (excess) money in the financial system eventually went into funding the internet boom. Interest rates stayed low for awhile and then started moving higher as the economy boomed.  We are in that same situation now.  Low interest rates tend to signify the end of bear markets.  But don't tell that to the bears.

So what is our government seeing right now and want Americans to have? Internet 2.0 (continuation of the internet) and green energy revolution. Especially green energy. If we don't build out our green energy technologies, the chinese (their govt is actively funding green tech) or another country will beat us to it. We don't stay a super power by letting another country beat us to important technologies -- and green energy is certainly very important. This is why we will have the green energy super bull market, not the polluting "peaked" oil or "bridge fuel" natural gas.

The chinese Suntech, for instance, will have achieved grid parity within the next 2-3 years. Americans just aren't the type that stand around and let others beat us. I have to believe our government will most likely brew the green energy revolution.

Eventually (probably the end of this decade), this lengthy secular bull will end and a real secular bear will take over and the market will collapse for good (especially when there are no more disruptive technologies on the horizon).



  1. hmmm I think that chart is flattered by the weakness of the dollar,try looking at the market priced in yen or gold

  2. Would Warren Buffet invest in the Nasdaq for the long haul at this particular moment in time? Somehow, I don't think he would buy the Nasdaq at this price. He would find quality companies to buy at a nice low price instead of an overvalued momo/pomo-driven index.

  3. Yes, that's Buffett's m.o., he is a buyer of stocks not a buyer of indices.

  4. Your argument is flawed because you are ignoring history: what happens when governments overspend and end up destroying their currency.
    The US is at that point in its history. We will never be able to discharge the national debt without extreme austerity - shrink the federal budget. To keep printing money and selling Treasury bonds will eventually end badly.

  5. "The US is at that point in its history."

    The US is at that point in its history just about every year for the last 100 years.