December 14, 2011, Bob Brinker: Ongoing Cyclical Bull Market-Secular Bear Megatrend

December 14, 2011.................................................................(comments)

When will  Bob Brinker call the end of the cyclical bull market that he says is running concurrently with a secular bear megatrend?

 Marketimer, June, 2010, Bob Brinker said:  "Once the secular bull market peak was reached in early 2000, the current secular bear megatrend commenced......Based on the last two complete secular bear market, the duration of these long and frustrating period has  range from 16 to 20 years.....We are now in the eleventh year of the current secular megatrend and it appears to  us that this trend will not play itself out any time soon. We expect the next cyclical bear marker to occur within the context of the current secular  trend."

Brinker's stated goal is to identify when the cyclical bull market becomes a cyclical bear market within the secular bear megatrend. So far, there have been two cyclical bear markets since year-2000.  Brinker completely  failed to call the cyclical bear market that began on October 9, 2007 and ended on March 9, 2009, wherein the S&P 500 Index lost 57%. Just the opposite, he was calling bottoms all the way to the bottom and issuing repeated "all-in" buy signals.

Right now, Brinker believes that the current cyclical bull market that began in in March 2009 when the 2007-2009 cyclical bear ended, is still intact.

December 5, 2011, Marketimer, Brinker wrote: "If we are correct that the cyclical bull market trend remains intact and the stock market made a major correction bottom during the early autumn period, any weakness in the area of the August/September early October lows is viewed as an additional buying opportunity......"

So if the stock market has been in a secular bear megatrend for the past twelve years,  when is it likely to end? And how many cyclical bull markets will happen before it ends?  David Korn took a look at the cyclical trends during the worst secular bear megatrend of the 20th century. Notice that there were a total of six cyclical bears and five cyclical bulls in the 1929-1949 secular bear that David writes about. This is posted with the author's permission. David Korn wrote: 

"I have never wavered from my view that we have been in a secular bear market that began in the first quarter of 2000 when the stock market had become extremely over-valued.  Our current secular bear market in my opinion is based on a long-term reversion to the mean in price-to-earnings multiples.

The first bear market in our current secular bear was brutal as the tech bubble busted beyond belief.  (How¹s that for alliteration!).   Over the course of about 2-1/2 years, the S&P 500 declined 49.15%. What many investors forget is that the Nasdaq declined 78% from peak to trough.  You read that right ‹ 78%!  And back then, there were a lot of investors in tech stocks, tech mutual funds, indexes that tracked the Nasdaq or parts of the Nasdaq (i.e. QQQQ).

In the last bear market, we witnessed a 56.78% decline in the S&P 500 from the October 9, 2007 all time high to the closing low on March 9, 2009.  Long term subscribers of mine have seen my analysis of all the cyclical bull markets that occurred during the 1966-1982 secular bear market.  (If you are a new subscriber and would like a copy, just let me know).

This weekend, I want to do an overview of the 1929-1949 secular bear market. That was a whopper 20-year secular bear market and deserves particular attention as we are about to enter the 12th year of what I believe is the secular bear market that began in the first quarter of 2000.  I personally think we have a ways to go in this secular bear market.

SECULAR BEAR MARKET (September 1929 - June 1949)

Introduction

So, what were you doing 82 years ago?  Do you have parents or grandparents or great grandparents that remember it?  We were in the roaring 20s and the stock market had gained 497% over an 8-year time frame.  The Dow had risen from 63.90 on August 24, 1922, to 381.19 on September 3, 1929.  People were as excited about stocks as they were back in the bubblicious days of 1999.

Cyclical Bear Market Number 1

And then along came Mary.   A vicious bear market began.  It was downright ugly as investors witnessed record one-day losses of 13% on Black Monday, October 28, 1929, and another 12% loss on Black Tuesday, October 29, 1929. About two weeks later, the market bottomed (although not its ultimate bottom for this secular bear market).  On November 13, 1929, the Dow closed at 198.69.

Investors were despondent.  Their portfolios had been wiped in half in just over two months.  Things looked bleak, and investors were running scared. Quite simply, the stock market was considered a very unsafe place to be invested, just as it was at the end of 1929.

Cyclical Bull Market Number 1

Ok, we are back in November 1929, and the first cyclical bull market began on November 13, 1929, with the Dow trading at 198.69.  This bull market lasted about five months before reaching its cyclical bull market closing high on April 17, 1930, when the Dow closed at 294.07.  All in all, the Dow gained 48% during this cyclical bull market.  Investors were feeling good again.  Unfortunately, back in 1930, things took a dramatic turn for the worse.

Cyclical Bear Market Number 2.

After peaking on April 17, 1930 at Dow 294.07, the market took a nose dive. In just over two months, the Dow had declined almost 23% and closed at 211.84 on June 24, 1930.  Investors got a head fake over the next few months, as the Dow rose about 15% to 245.09 on September 10, 1930.  But the gains were short lived as the Dow crumbled to 121.70 on June 2, 1931.  One month later, the Dow went up to 155.26 (a gain of 27%), but it happened in 30 days, and was really just a temporary spike.  The market immediately resumed its bear market ways for another year, among what might well be the worse bear market our country will ever see again.  The carnage ended at Dow 41.22 on July 8, 1932.

Did you catch that?  From April 17, 1930 when the first cyclical bull market ended at Dow 294, to July 8, 1932 the Dow declined 86% over a 3-year and 3 month time frame! 
 
Cyclical Bull Market Number 2

The Dow began the second cyclical bull market of the 1929-1949 secular bear market at a price level of 41.22.  Hard to imagine now with the Dow about 2000 times greater than that.  Investors were totally beaten down from the last bear market.  Investing in the stock market was probably the last thing on many investors' minds.  Of course, hindsight is 20/20, but when nobody wants stocks, that has often been the time to buy them.  Investors who could stomach the action in July 1932 were quickly rewarded,  the Dow began its bull journey with a hefty 68.3% gain in just over a month!  The volatility, however, was extreme and it was commonplace to see corrections during this particular cyclical bull market in the magnitude of 15%, 17%, even 20% over a relatively brief period of time.  Sound familiar?   This bull market lasted until February 5, 1934, when the Dow closed at 110.74, reaching its cyclical bull market closing high.  All in all, this cyclical bull market lasted 19 months.  During that time frame, the Dow gained 168.6%!

Cyclical Bear Market Number 3

Some market historians suggest that the prior cyclical bull market continued for another three years until February, 1937.  However, this ignores the 5 month period between February-July, 1932.  The Dow started that bear at 110.74 on February 5, 1934 and declined to 85.51 by July 26, 1934.  That marked a decline of 22.79%.  I count that as cyclical bear market #3, although obviously these labels are open to interpretation.

Cyclical Bull Market Number 3

The third cyclical bull market began on July 26, 1934 with the Dow trading at 85.51.  The bull market lasted until the Dow topped out at 194.40 on March 10, 1937.  All in all this cyclical bull market lasted about two years and 8 months.  During that time frame, the Dow gained 127.36%!  This bull market had enormous gains.  During that time, the market had one correction of over 10%, with seven other corrections in the range of 3.11% to 9.7%.

Cyclical Bear Market Number 4

Following the Dow's rise to 194.40 on March 10, 1937, a very tough cyclical bear market ensued.  The Dow fell to 98.95 in just over a year when the bear market ended on March 31, 1938.  This marked a decline of 49.1% -- similar to the bear market we had from 2000-2002 in terms of the percentage decline. In fact, only 2% points less than the most recent bear as measured from October 9. 2007 to November 20, 2008.

Cyclical Bull Market Number 4

The fourth cyclical bull market began on March 31, 1938 with the Dow trading at 98.95.  This bull market lasted about a year and a half and brought the Dow up to 155.92 on September 12, 1939.  This came about 8 months after the bull market had reached its prior peak of 158.08.

Cyclical Bear Market Number 5

The fifth cyclical bull market was a brutal one.   A seriously brutal one. The Dow was at 155.92 on September 12, 1939.  Flash forward about 2-1/2 years and on April 28, 1942 and the Dow had fallen to 92.92.  That means the Dow was actually trading lower than where it had been four years earlier! Would you have wanted to stay in stocks?

Cyclical Bull Market Number 5

If you hadn't sold out at the bottom, you were in for a very long and very profitable cyclical bull market.  The Dow had fallen to 92.92 on April 28, 1942.  From there, the Dow had a wonderful 4-year run.  By May 29, 1946, the Dow had risen to 212.50 which marked a gain of 228.69%!  Simply amazing.

Cyclical Bear Market Number 6
 
The secular bear market of 1929-1949 began and ended with a cyclical bear market.  The last one began at the end of May 1946 and lasted until June 13, 1949.  Just a little over 3 years.  During that time, the Dow declined from 212.50 to 161.60 --  a decline of 23.9%.

CONCLUSION

That was a long 20 years.  The Dow started at 381.19 on September 3, 1929 and ended at 161.60 on June 13, 1949.  So as to not end on a depressing note, this 20 year secular bear market preceded a 16-year secular bull market during which the Dow generated annual returns of over 16-1/2%.

Studying past bull markets, can give you the ability to gain a perspective on how the market moves.  Too often, we are unable to see the forest through the trees; or, we follow so closely, that we only see the trees without being conscious of the forest.  I have always felt that the study of these market cycles can benefit my subscribers, and so I do a lot of research on them and hope they provide some perspective on the market for you."

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2011

Honey here: You can get a complimentary issue of David Korn's weekly newsletter at this address: TalkAboutMoney@gmail.com/   David also co-edits The Retirement Advisor with Kirk Lindstrom. A complimentary issue is available at this LINK.
 

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