Quote from Eugene:
He is in the bear camp...Believes we are in a secular bear market.
Some of his points are so eye opening it's hard to see how they can be overlooked.
For example, the observation that there have been 14 bull / bear cycles going back to 1800, each one lasting an average 15 years give or take a few, with a 28 year full cycle. Considering that the 82-2000 bull run was longer than the historical average, should we then follow that up with expectations of a bear market coming in 80%
shorter than the historical average?
Which begs the question, why are so many people oblivious to the fact that there are centuries of evidence supporting long term cycles in the market, based on simple economic principles of expansion and contraction rather than mumbo jumbo? Why is there such denial that interchanges of bull and bear are akin to the market breathing in and out, allowing cycles of creative destruction to facilitate innovation through forced change?
It would also seem that bull / bear cycles are perhaps longer than they need to be economically, but attuned to their human participants psychologically. Investors who primarily participate in the markets experientially do not understand their habits of imprinting, hindsight bias, confirmation bias, representative bias etc... perhaps they simply need time to have their longstanding models invalidated through "forced awareness," or else need to be pushed aside by a new generation of investors for change to occur.
An understanding of market cycles based on principles of natural contraction and expansion, combined with observations of human psychology + the effect of catalyst events and government policy, makes a lot more sense to me than either prediction mumbo jumbo or short sighted declarations based on short term patterns (i.e. the past 20 years).
Something else that really stood out was the observation that the technological shift from 1820 - 1850 or so (fudging the years a bit) was far more radical in terms of productivity and social change than the one we saw in 1970-2000, and yet the overall rate of GDP growth did not change dramatically back then.
Even back in the bubble days the valuations made no sense to me because the bulls were overlooking the distribution effect. Meaning, what's good for the economy is not necessarily good for the stock market. If an innovation allows for increased consumer value across the board, that consumer value distribution does not necessarily contribute to extra profits for any one sector or the market as a whole. If anything, creative destruction could be considered market neutral in the sense that the category killers of the world
replace and invalidate the capital and market share of their less efficient predecessors. Thus when the level of competition rises as a whole, the market does not rise in reference to itself. This may explain why GDP growth has stayed steady in the face of technological advances - those advances are continually absorbed and distributed, firming up a quality of life standard rather than building ladders to the sky.
Add in the credible argument that the overwhelming majority of earnings growth during the bull market was due to multiple expansion and inflation (i.e. sentiment and liquidity), plus the fact that earnings logically can't grow faster in aggregate than real GDP, and you have to wonder what people are smoking who think the next 20 years will be as good or better than the last 20. Why should natural cycles - and the need for creative destruction through cycles of cleansing contraction - be repealed?
p.s. the next person to say bearish threads are a
contrarian indicator should get
nonrepresentative statistical sample written on their forehead in black magic marker
