Diary of a Financier

History’s Secular Bear Markets and Today’s Sideways

In Economics on Wed 2 Mar 2011 at 19:04
  • We’re in a secular bear market, started in 2000.
  • I see the next economic decade in 3 phases: sideways (through 2012), breakeven (2013-20), new bull (2020+).

Since Doug Short’s “Mega Bears” chart has already disintegrated before our eyes, a permutation of it posted at PragCap a few weeks ago caught my attention:

Secular Bear Markets- Comparison of % losses in inflation-adjusted terms.

While it’s quite relevant that things in asset land are even worse than they seem (when expressed in inflation-adjusted terms), the chart means little to me because I see very little commonality among the different bear trends.  What I will say, is that in way of opinions, I’ve been proffering that the next decade will have three economic segments…

  1. present-2012: Muddle-through economy, Fed clinching [clenching] to ZIRP to accommodate the wave of ARM resets through 2012.

    ARM Resets- Matching 2007’s Subprimes, a huge wave of rate adjustments ends in 2012.


  2. 2013-2020: Cumulative economic breakeven growth, struggles with deflation, asset values fluctuating within a broad range, new industries (alternative/renewable energy!?) burgeoning quietly, certain blue chips fading into obsolescence loudly, with entitlements & pensions weighing on the real economy.  This breakeven will result in a slow return of the outsourced US manufacturing industry, and a slow absorption of unemployment slack.
  3. 2018-2020: US demographics shift to create organic demand and a new, secular bull market.

A decade is a long time horizon for a forecast, so I’ll admit that this is subject to change.  Nevertheless, my meme since 2008 has been:

I’ve mentioned this in newsletters to clients and in roundtable discussions with colleagues:

I’m not a big proponent for stimulus, because I think disinflation since the Volker Fed has been the driving force of real growth in the mature US economy, and at some point we need to generate organic growth.  We also need to recognize the headwinds of population demographics and the inevitability that real growth isn’t sustainable in perpetuity…

The economy and interest rates will remain pinned through the hotspot of ARM resets in 2012.  That’s when our government’s policy actions today will have an opportunity to affect economic performance.  Unable to stand on its own, the economy will lack organic resolve through the 2017 pension liability “underwatering”–until demographics rally back 2018-2020.

…and a lot of that hinges on the emergence of a new, innovate industry like Alternative Energy to get us through the middle years without a disaster.  So, yes, I’m persuaded by the notion that a Great American Bear Market–a broad range consolidation–will extend until 2020, particularly since that’s my target date for full demographic resurgence in the US.

In addition, I occasionally check in on the long-term waves of broad indices per my own technical charts, and looking at the S&P 500 (SPX) with the Dow (DJIA), it’s hard for me to conclude that we’re not in a secular bear phase.  UBS’s technical analyst, Peter Lee, and Barry Ritholtz seem to agree:

S&P secular markets

Josh Brown finds hope in a similar Dow chart, “I’m willing to wait and fight through to get to mine.  Come tomorrow or a decade from now”:

DJIA secular markets

I’m working on an entry for tomorrow, and it should entail some challenges to my outlook herein.


  1. […] the wake of Wednesday’s entry about my secular economic outlook, I thought I’d discuss some near-term challenges to my […]

  2. […] “12-18 month” timeframe may be a bit premature. Nevertheless, I’m on-the-record citing a resurgent American bull market led by demographics. I can resolve that expectation with […]


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