Crestmont Holdings' Easterling: Wait a Sec! The Secular Bear Market Never Ended

Wednesday, 01 May 2013 08:03 AM

By John Morgan

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Investors glowing in the recent stock market highs should take a look in the rear-view mirror, because a secular bear market that began in 2000 never really ended, according to Ed Easterling, president of Crestmont Holdings.

Easterling, who clearly takes a long-term view of things, said the 1990s bubble market became so far overextended that it will still take time to bring valuations back down to levels where a bullish rebirth could take hold, Investment News reported.

“We’re pretty far away from a secular bull market — five to 10 years at least,” Easterling said in a recent update to his research, Investment News reported.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

The Standard & Poor’s 500 recently traded at a 22.4 price-earnings (P/E) ratio, according to Easterling’s 10-year normalized measure. But secular bull markets usually start with a normalized P/E of about 10 or less, he said.

“It doesn’t have to go down 50 percent,” Easterling explained. “The market can stay here another decade while earnings come up” and valuations go down, he contended.

In a recent public research note for Crestmont Holdings, Easterling cited “compelling evidence” the bear market of 2000 is still with us, similar to when the Dow Jones Industrial Average made new highs in 1972, almost a decade before a new bull market began.

“This bear will have another decade or longer to run, unless there is a dramatic change in the inflation rate over the next few years that decreases P/E substantially. The preceding secular bull ended with the market valuation (P/E) at levels twice as high as all previous secular bulls,” he noted.

“That meant that this secular bear had twice as much ground to cover. The 12 ½ years have deflated the bubble, but the market still remains at levels consistent with secular bear starts.”

But Doug Ramsey, chief investment officer at research firm The Leuthold Group, said the presence of a bear versus a bull market is really an argument in semantics.

“We would argue we made the secular lows on stocks price … on March 9, 2009, Ramsey told Investment News.

Ramsey pointed out that experts concluded a secular bull market started in August 1982, although the previous bear market lows were made much earlier in 1974.

“And that’s exactly what we saw in March 2009. I think now we’ll see a multi-year base-building period that could last another four or five years.”

Sy Harding, founder and president of Asset Management Research and publisher of StreetSmartReport.com, attempted to define a secular market move as opposed to a cyclical market move in an article for Forbes.

“A secular bull market is a long-term rising market in which periodic cyclical bear markets take place, as in the 1980s and 1990s, but the long-term rising trend to ever higher highs soon resumes,” Harding said.

“A secular bear market is a long-term sideways market, in which there are periodic cyclical bull markets that take the market back up to its previous peaks, but a cyclical bear market soon takes over and plunges the market back down from those peaks. There have been three secular bear markets over the last 110 years.”

According to Harding, a reason for caution is that if we are still in the secular bear market that began in 2000, the S&P 500 has reached the level of its previous peaks again.

His conclusion: a big stock market dip this summer would, at minimum, threaten the cyclical bull market that began in 2009.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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