How Much More Does The Bear Market Have To Go?

Tyler Durden's picture

The secular bear market that the US has been caught in for a better part of the last decade will end. Eventually. The only question is when. Last week we reported that the bulk of market gains year to date, has been driven exclusively by PE multiple expansion, which is to be expected: EPS forecasts for the end of 2012 are now the lowest they have been since the beginning of the year. Yet while such sharp, sudden and short and bear-market rallies, exclusively on the back of the global central banks, are to be expected, the bigger question is how much more of a secular decline in PE multiples is to be expected before the bear market ends and a new bull market can begin. As the following chart from Crestmont Research shows there is quite a bit more to go, even with Fed assistance (or rather, because of it, and its forced rejection of reaching a fair clearing price sooner rather than later), before the bear market is officially over. Just over 50% more. To the downside.

How the Bear Market declines have looked in perspective, and where we ultimately have to go before all the artifical supports are cleared out:


And the Bull Markets preceding them...

h/t Things That Make you go Hmmm

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TheSilverJournal's picture

The P/E ration on this one should hit about 2.5

The Monkey's picture

Cheap money makes for bull markets. It would be the ultimate irony if TPTB set up another huge speculative bubble only to see it crash under it's own weight. Given a choice between a speculative bubble and ....

Think it can't happen? Then study the 1920's (policy in 1927).

TheSilverJournal's picture

The cheapening of money makes for bull markets. Once the money stops getting cheaper, the bull market ends and the detrimental effects of providing cheap money are realized.

Muppet of the Universe's picture

This is true.  But while everyone gets over hyped on all of the projected Fed Easing.  The Fed is likely doing no easing at all.  It is the market that is becoming his lapdog. 

Eventually, and this is absolutely true, the market will stop buying into the bc until something is really done. 

Even still, you must remember, the bear wins in the endgame.  whether that be because of long gold or short market.

The Monkey's picture

With the fruitcakes at the Fed, those of us with some liquidity can always win. Joe Sixpack's rising beer price supports my higher stock price. Wealth disparity rises. Sad but true. This is the fucked up monetary system we have.

TheSilverJournal's picture

That can only happen until a sudden depreciation, or hyperinflation altogether. 5 years tops.

The Monkey's picture

I'll be long gone. Retail will be left holding the bag.

TruthInSunshine's picture

Japan's Nikkei:  From 40,000 in 1989 to 8,700 today.


Some will claim that Japan has been caught in deflation:  This is incredibly disingenous. Japan's had a ton of inflation over those 23 years, but like the U.S., the Ministry of Mis-Truth & Dis-Information has tortured statistics pertaining to same to massively understate this 'problematic trend.'

For every reason some claim it won't/can't happen to U.S. equities, a very compelling reason (if not 2 or 3) can be put forth that it is likely to happen to U.S. equities (liquidity traps and radical central fractional reserve bank interventionism break markets).

The U.S. is on the same track in terms of indebting itself as Japan has been since that 1989 peak. No matter what anyone claims, there's every reason to believe the national debt will grow even more rapidly, due to larger annual deficits, as a result of more entitlement spending due to demographic trends in the U.S.

So, that's a 23 year secular bear Nikkei, devastating even the largest cap, 'safest', bluest of blue chip stocks.

jeff montanye's picture

useful perspective, imo.  japan first, europe second, u.s. third.

TruthInSunshine's picture

The parallels between post-1989 Japan and post-2008 U.S. are incredibly striking, right down to the ramp up in deficit spending, behavior of the government bond market (and yields), and the demographics, whereby couples literally decided to have few children or no children at all, as a result of economic circumstances.

The already inverted pyramid in the U.S., whereby there are 3 retirees drawing public and private economic benefits (pensions, medicare, social security, etc.) for every 1 working American that pays net-net taxes, is only going to get more inverted.

Has anyone here ever tried to balance an upside down triangular shaped object?

The Monkey's picture

What are we really comparing? Japan's QE was not outright debt monetization until recently. The US is monetizing on it's road to perdition.

TruthInSunshine's picture

"Japan's QE was not outright debt monetization until recently."


Oh really?

The Monkey's picture

Really. Check out Richard Koo's book, written around 2000 I believe. I don't particularly like Koo, but his mechanics are pretty tight

sessinpo's picture

"Has anyone here ever tried to balance an upside down triangular shaped object?"


Yes. The first notable person's name was Ponzi. Subsequent copy cats followed including a more recent Madoff.

But as I have said, ALL social programs are also upside down, or pyramid schemes that ultimately fail, including SS, medicare, medicaid, etc. The number of people on these programs continues to grow while the number of people supporting the programs can't keep up. This is the main reason why socialism fails. I sorry to break the bad news to you socialist/liberals, but the fact of life is that there are winners and losers and that is what free markets and capitalism brings out. Socialism just makes everyone a loser - social justice and redistribution of wealth.

economicmorphine's picture

Two seats empty to every one occupied at today's NASCAR race in Indy.  Yes, Joe Sixpack's beer is getting more expensive but he is responding by drinking less.  He has also avoided the Kool Aid.  Methinks that Joe Sixpack is not only smarter than Bernanke thinks he is, he's also smarter than Bernake.  Period.

jeff montanye's picture

he might also be smarter than those front running the fed, again. 


The Monkey's picture

No, the Fed will most certainly ease. Think about it. To the Fed, the worst case is a bit of inflation and some political flack in the short run. Compare that to the self-reinforcing dynamic of a global recession. Bernanke will absolutely ease because it is an expedient way to remove short-term risks. As far as the long-term goes, they will hope that by anchoring the markets they will allow Europe and congress more time to solve their fiscal crisis.

Of course none of this will work, but it tells you where the next 5% is coming from.

My bet: ~$600 billion in open market purchases: intermediate and long term agency mortgages + short to intermediate duration treasuries. 50/50 on a one year extension of ZIRP to 2015.

If you are short into Wednesday, your nuts.

FischerBlack's picture

If you think the Fed is going to institute another round of LSAP at the next meeting, you're not paying attention to the 5y5y inflation breakeven. If history is any guide, Ben doesn't do LSAP until the market prices in less than 2% inflation for the 5y5y.  And right now it's solid at 2.5%. There's no wiggle room for LSAP right now.

The Monkey's picture

Bullshit. The spread between TIPs and treasuries is absolutely the wrong metric with a fixed real CPI target (2%) and nominal long term rates that have FALLEN by over 150 basis points in the last 15 months.

The Fed IS and HAS BEEN underrunning it's inflation target and has plenty of room for LSAP (according to their fucked up target).

In any case, don't be caught short and have your finger on FAS on Wednesday.

FischerBlack's picture

Drops in the 5y5y inflation breakeven below 2% have coincided with every major policy announcement since 2008. And no major policy announcement has occurred without such a drop. I think it's a mistake to opine on the likelihood of LSAP without taking this into account. It seems pretty clear to me that the Fed is watching the 5y5y.

Meesohaawnee's picture

if i were romney id be all over that. talk about election influence

philipat's picture

These Charts are using CAPE data which MAY not be reasonable because this cycle included TWO major bubble bursts. So far. On a future PE basis (And future earnings are ultimately all that matters) the S&P P/E is about 13X.

That said, it is correct that the average secular bear market lasts ABOUT, 18 years. So if this one began in 2000......................

The Monkey's picture

Heading straight toward bubble # 3. The China / commodity bubble. Only to be delayed / made worse by massive debt monetization.

The Monkey's picture

Countdown to global easing: hours, days or weeks.

Shanghi stock exchange: stuck at 52 week lows.

For a contrarian high beta bargain: Facebook, Zynga and Chinese stocks.

RiverRoad's picture

You got that right.  We ape eveything about the Europeans.  Now we've even got their unemployment statisics; minus the bennies, I might add.  Now we're just one more European country.

the 300000000th percent's picture

bear market? i thought we were still in a full retard bull market with the dow up to over 13000. Do u mean soon we will enter a double duty super duper bull market?? with the dow up to 100,000?


TheSilverJournal's picture

We will. And P/E will be getting clobbered. How is this possible?...Massive inflation.

Muppet of the Universe's picture

In the event of hyper inflation: see Zimbabwestock market.

bigkahuna's picture

There are no real investors in this market. It looks like large institutions have accumulated a very large majority of outstanding publicly traded shares comparatively speaking over time. Once the regular investors have rotated out of the market, all that is left is to sell shares back and forth. The only reason that there is a down day is because the IT people got laid off and some joker from management has to get off their ass and watch the algos.

philipat's picture

Agreed. It's now just a circle jerk between HFT algos.

MunX's picture

More of a right shoulder of a rounded top.

Poqit's picture

Yeah, even the 2009 low had a Shiller PE of 15, only slightly below the historical median.

Russell Napier's estimate for the S&P trough is 400, but I can't imagine the powers that be would let that happen.

Duke of Con Dao's picture

here's the lastest installment in the series 'You Didn't Build That!' starring the Fuhrer himself:

YouTube - 'Nazi Party? Adolf Hitler... You Didn't Build That!' sez President Obama


el Dukerino

JustObserving's picture

Why are you applying reason and history to a totally manipulated market? That is just a waste of time.  The Fed controls the market.

TheSilverJournal's picture

To see what happened in past booms and busts. This last boom (expansion of money and credit) has been the greatest of all, so when the bond bubble implodes and the printing press is rendered useless, it will be the greatest bust ever as well.

ghenny's picture

Anyone care to hazzard whether the Draghi print - if it occurs - will drive the DOW to 15,000 this year or 10,000?  For the life of me I cannot figure out what logic would guide a decision on this given the entangelments (as in quantum voodoo) between Central Banks, Global Economy reports and crazy market movements.  Would love to hear some clear thinking on this.

TheSilverJournal's picture

It could hit both this year yet. If the Bernanke doesn't come out with another giant LSAP Wednesday and there's more game playing in the EU, equities will fall. But once the Bernank pulls the trigger and print and purchase and the ESM is approved and action is taken, inflation will roar bringing stocks who knows how high. Silver will outperform all asset classes.

fonzannoon's picture

SilverJournal I wonder how much more juice this market has even if Ben presses the button. I think metals still have a lot of upside but Bernanke has this market pricing QE in right here no? Maybe we get a big week?

TheSilverJournal's picture

Treasuries have negative real interest rates. Buyers of Treasuries are literally paying for the privilege to lend the US money. The lower yields go, the worse of a move it is to sell equities and buy dollars or Treasuries.

deflator's picture

 "Treasuries have negative real interest rates"

 UST's are the current bubble dujour, lower yields mean higher bond prices. U.S. government sanctioned speculators are chasing lower yields and higher bond prices.

 These sanctioned speculators are not buy and hold investors. The government sanctioned fixed income "banks"are glorified day traders.

TheSilverJournal's picture

Right, so the entire move into Treasuries is by traders. It's going to be one hellofa short squeeze when bond prices start collapsing. Once it starts, the end will come quick.

Tirpitz's picture

"Silver will outperform all asset classes."

Silver and NatGas. But currently the metals have the better charts.

TheSilverJournal's picture

The difficulty is in the US's ability to export NatGas. The best way to transport the stuff is through pipes. Turning it into LNG, shipping it overseas, and regassifying it really cuts into its exportability and limits its upside tremendously. 

RockyRacoon's picture

Uh, not really.  LPG is pipelined as a liquid, it's trucked or shipped by rail as a liquid.  It's not gassified until it's at the point of use.  Go out and look at that gas grill on your back deck.  If the U S has trouble exporting it's not because of its gas/liquid state.  Look elsewhere.