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Great Depression Online Archive Issue:

The Next Big Bull Market?

Great Depression Online
Long Beach, CA
December 29, 2009

Inside This Issue You Will Discover…

*** Ten Years of Losses
*** Twenty Years of Losses
*** The Next Big Bull Market?
*** And More

Ten Years of Losses

For stock market investors, the concluding decade has been the worst calendar decade for stock performance in nearly two centuries.

“Even with the rebound this year,” reports the Wall Street Journal, “the U.S. stock market is on the verge of posting its worst performance for any calendar decade in nearly 200 years of American stock-market history.”

“Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress.  Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.”

~~~~~~What’s Coming Next~~~~~~

The stock market bounce is temporary.  The calm before the storm.  What will soon follow is a prolonged downturn.  A shakeout deeper, more severe, and more far reaching than anything we’ve seen so far.

Now, a depression may sound like bad news.  But actually, it isn’t.

How to Prosper in a Downturn 

~~~~~~~~~~~~~~~~~~~~~~~~~

What’s more, the last decade “edges out the 0.2% decline stocks suffered during the Depression years of the 1930s, which up until now held the title of worst decade.  And it is worse than other decades with financial panics, such as in 1907 and 1893.”

After 10-years of losses, its remarkable any rational person still invests in stocks…yet, they do… 

That’s why we expect the stock market to continue to underperform the average annual returns of about 10-12% over the past century for at least another six or eight years.  The rebound in stocks this year only further ensures this; particularly since the underlying economic fundamentals supporting the stock market bounce are more suspect than a saturated earthen cofferdam downstream of a hurricane flood.

Twenty Years of Losses

Just because the last 10-years have been negative for stock market investors doesn’t mean the next 10-years will be inevitably positive.  In fact, government policies are practically guaranteeing a stagnating economy for years to come.

Here’s why…

The federal funds rate is set at practically zero and the government’s running a double digit federal budget deficit.  In other words, the Fed and the Treasury have opened the flood gates of fiscal and monetary policy, yet the economy lurches along like molasses in February.

Government fabricated jobs appear…private sector jobs disappear.  Banks are given access to cheap credit yet they don’t lend it; they hoard it.  And householders no longer borrow money; they save it.

Where the stock market’s concerned, all the money pumping can puff into stock prices for a while.  But, then again, it can quickly puff out too.  On the balance, it succeeds not at stimulating economic growth, but at stretching out the bear market.

For example, when the pin pricked the Japanese economy’s asset bubble in December 1989 the Nikkei 225 was at 38,916.  As of last Friday, after 20-years of zero interest rate policy and massive doses of government stimulus, the Nikkei 225 sits at 10,494…down 73 percent.  If you’d invested $10,000 in the Japan’s stock market in December 1989, after 20-years, it would now be worth just $2,700.  In inflation adjusted terms, it would be worth far less. 

The Next Big Bull Market?

What this all means, we don’t exactly know?  But with a little contemplation and consideration we can conjecture several guesses…

1.  Over long periods of time markets generally go up.  So, too, over seemingly long periods – 10-years or even 20-years – markets can go down.

2.  During an extended bull market buy and hold investing works great.  But at other times, and what your mutual fund broker likely neglected to tell you, buy and hold investing is an utter disaster.

3.  When the credit cycle has peaked – like now – giving an economy more credit no longer works to stimulate growth or demand.  It does, however, succeed at encouraging speculation and discouraging savings.

4.  No matter how bad an economy may seem…it can always get worse.  Particularly when it’s retarded by misguided government spending like that of Hoover and FDR during the Great Depression and now Bush and Obama.

5.  When the last big bull market commenced in 1982 Ten Year Treasuries yielded 14.44% and the PE ratio of the S&P500, based on trailing 12-month earnings, was just 7.56.  In other words, money was expensive and stocks were cheap.  Today Ten Year Treasuries yield just 3.81% and the PE ratio of the S&P500, based on trailing 12-month earnings, is 60.70.  Contrary to 1982, money is now cheap and stocks are expensive.

6.  The next big bull market will not commence until all expectations of stock market riches are purged and punished.  Then, only when dorks and weirdoes still invest in stocks, the stock market will embark on another secular bull market of spectacular returns.  Until then, prudence and caution will be rewarded.

Of course, the world is a mysterious place…and markets can be as irrational as a schizophrenic prairie dog.  With that in mind, we’ll dare to ask the question…

Will the DOW on January 01, 2020, be higher than today?

Absolutely, without a doubt, most definitely, yes…perhaps it will be.

Sincerely,

M.N. Gordon
Great Depression Online

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