Saturday, February 2, 2013


Considering the extreme complacency in the stock market, (I’m starting to hear multiple calls for a new secular bull market) it would probably be fitting that the next crisis is now sneaking up on us completely out of the blue as the Japanese currency begins to collapse. By the way secular bear markets don’t end until PE ratios reach extreme levels of undervaluation. Notice in the lower chart the extreme levels from which this bear market began (PE’s above 40). I think we can safely assume that this bear market is not going to be any different than any other one. 

It certainly didn’t end with a PE ratio of 15 when every other bear market in history ended below 10 and every one of them began from much lower valuation levels (usually with PE ratios about 20-25). This bear market has much bigger excesses to clear than any other bear in history. The rubber band got much further stretched to the upside this time. Normal regression to the mean forces will demand that the bear market should be deeper and more severe than probably any other bear in history.

So I don’t think we need to take anyone calling for a new secular bull market in stocks seriously. I think we all know this is about currency debasement, as there is no new technology to drive a new secular bull market yet.
I warned traders that we were about to enter the euphoria phase of the cyclical bull. This is an ending phase by the way. But the end of a bull can span many months and even a year or more, which is why I keep warning the shorts to be patient.
More in the weekend report