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Secular bull or bear markets are difficult to discern, until they are thoroughly "mature". Consider 1986, 1987, 1988. The market was up strongly for about 5 years by then. Then came the crash of 1987. Naysayers were chortling with glee. Was the bull market over? Was it even a secular bull market? We didn't really know until 1990 or so; maybe 1993. By then, the secular bull market was over a decade long.
Secular bears are shorter than secular bulls. Was the secular bear market of 2000-2009 "long enough"? Sometimes I'm convinced that it was. Other times I take the opposite view. This is why buy-and-forget seems like a wise strategy, even when from daily (or even seasonal) trends it comes across as being patently stupid.
The fullness of time will certainly either validate or shoot down my opinion here.
Regardless, given current Fed monetary policy, investors are foolish, in my view, to keep too much money out of this market. Unless, of course, they're older and need to dial-down risk in their portfolios.
Except for my emergency fund, I'm still all-in at this point.
Secular bull markets follow a semi-predictable macro trend in adopting new technologies that boost productivity and thus profits in large corporations. They're sprearheaded by small companies who foster the innovative technologies until they, themselves, become big or are bought out by the big boys.
The bull market in the 50s and 60s were from adoption of industrial re-tooling of America and advancing consumer goods, especially in large systems (electricity adoption in the countryside, television, aerospace, and nuclear power, to name a few). The 70s to early 80s saw decline due to the mature technologies petering out their benefits but did see the innovations of the future happen (Internet developed in university labs and DARPA, electronics miniaturized in Japan, large scale automation developed in Europe and Japan, etc).
The 1980s and 90s saw the adoption of industrial grade electronics and efficiency and automation, as well as the virtual economy that were developed in the 70s and early 80s. Name an industry. Any industry. It's been touched by the Internet and has seen an improvement in quality and productivity.
Then came the dot-com bust. At the same time, a bubble economy was created by politicians who wish to bolster their party faithful. We all know the end result: the Bush years saw a net zero job growth, but not because of anything the poor guy did or his party did (though don't get me wrong, I think Bush II was the worst president in a long time in this country, but that's politics and not totally connected to what I'm going on about here). It's because the efficiency of the Internet and electronics had reached its peak point in industry. Some gains were made, but not enough to head off the bubble created by the 80s and 90s and its explosion. Nor could have anything been done, really.
At the same time, the past 12 years has seen remarkable scientific breakthroughs:
1) Invention of nanoscale production which one day will revolutionize the electronics industry again. Some examples: carbon computing, quantum computing, SSDs, and quantum entanglement. This promises to increase the efficiency in everything from internal combustion engines (as we unravel the now-uncertain aerodynamics of particle diffusion into compressed atmospheres) to solar cells (as we understand the ability of photons to be absorbed and the energy harnessed) and computers (imagine a vial 100 ml of water containing enough computing power to rival what your entire city today now has).
2) At-home manufacturing. 3D printers promise to revitalize the home industry of DIYers and big companies alike. Need a new drill bit? You can print one up for pennies (after an initial investment). Need a new compressor blade for a turbojet? Just download the specifications and print away! Need a new bracket for your shelving unit that your toddler just destroyed (rrrrgh)? You get my drift.
3) Chaos mathematics, interdisciplinary engineering and large scale system of systems. Over the past 12 years, remarkable changes have occurred in how we see large systems, in everything from human socities and their structures to ant colonies. Why do termites create the colonies that resemble boulders in the desert? Why do militaries project forces the way they do? Why does placing a beam 4 ft away from an emergency exit actually HELP evacuations? How can we delay investment in needed infrastructure by linking legacy systems together with computer networks? How do bees interact with crops of genetically engineered plants? All these questions in how natural systems behave in chaos yet have distinct structure, many times simple structure, in a micro level can now be simulated and understood. This promises to vastly change how we deploy resources, both human and industrial, with step increases in efficiency in consumption.
4) The citizen astronaut capitalist. Space harbors literally billions of tons of silver, gold, palladium, and other rare and valuable substances. With NASA being effectively castrated, the role of corporations in space will change how we see it. I expect to see spacebound solar arrays and mining operations in my lifetime.
5) Unknown unknowns. Who knew that the Internet would create whole new industries? Very few, and even those were mostly lucky. Who knows what the future holds?
All these things are laying the foundation for the next secular bull market. I think we haven't quite entered it yet, but once we do expect to see the next logarithmic jump in valuations.
Are there macro risks? Sure. Collapse? Unlikely. Enough risk to derail the next bull market? Not if human ingenuity have anything to say about it (note I said "human" not "American" for those who like to dump on the USA). Now is the time to invest, if not in America, then globally.
Until something completely unexpected changes the sentiment. Most of the big money has been made and valuations are starting to creep higher. The more bullish statements I hear the more concerned I become that we are entering the final stage of a bull market.
I'm also getting a bit worried about valuations. They aren't at rip off levels, yet, but the overall U.S. stock market is getting ahead of itself.
Better valuations exist in non-U.S. stocks, although they are traditionally more volatile.
Well, this is my hope too. It would be really nice if we get a repeat of 1980-2000 in the stock market.
But there's really no way to predict the future that far out.
It would be nice, but I think those kinds of returns are very unlikely. Valuations were much lower in 1982 than they are today, and were even lower than they were at the nadir of the last bear market in 2009.
Secular bull or bear markets are difficult to discern, until they are thoroughly "mature". Consider 1986, 1987, 1988. The market was up strongly for about 5 years by then. Then came the crash of 1987. Naysayers were chortling with glee. Was the bull market over? Was it even a secular bull market? We didn't really know until 1990 or so; maybe 1993. By then, the secular bull market was over a decade long.
Secular bears are shorter than secular bulls. Was the secular bear market of 2000-2009 "long enough"? Sometimes I'm convinced that it was. Other times I take the opposite view. This is why buy-and-forget seems like a wise strategy, even when from daily (or even seasonal) trends it comes across as being patently stupid.
I completely agree. This is also another reason why I like balanced mutual funds. The bonds in these funds smooth out the returns, making them more consistent and easier to stick with. The better performing balanced funds often match or even exceed the returns of large cap stock indices such as the S&P 500.
Now we have Sen. Rand Paul threatening to hold up the nomination of Yellen unless his bill gets a vote. Seriously, can the GOP stop trying to sabotage America?! I don't think the Democrats are much better, but at least they aren't holding our country's reputation and economy hostage for political points.
It's time for Corporate America to send the tea party a message in 2014. This rollercoaster of political uncertainty has to stop if we are ever going to see significant economic expansion.
Market isn't expensive, ask any of the successfully investors, especially Warren Buffett, when asked if there's a bubble, he said "No" without thinking.
There's always a risk of crash, but you will be in better position when market is at fair value vs market at a bubble.
Yes, market isn't as cheap as it used to be, but do you really want to wait until the next crash to jump in? Who are we to be able to predict that?
I am 95% equity, and planning to spend my 5% cash today.
The rally caps are back on ahead of the Fed statement tomorrow afternoon. I see that the chief investment strategist at Schwab is also using the word 'secular' to describe this market.
There's some other things behind the current drives in the market: 1) Boomers are retiring. The ones who put off their retirement are now considering retiring because their portfolios and homes have mostly recovered. The ones that don't retire are bringing their expertise to bear on their jobs and/or their hobbies are becoming their jobs. 2) Millennials are having kids. There are ~90 million millennials, and the older ones are having children. I'm not in this camp yet, but nearly all my friends have had a kid or two by now. Kids implies the need for houses, yards, toys, school supplies, food, clothing, and fixing that freaking bracket that that little rugrat somehow destroyed. grrrr..... Some risks: 1) Student debt is sky-high. College shouldn't rival a house mortgage no matter how you look at it. 2) Fewer blue collar jobs and the blue-collar C-average people who went to high school and graduated with a communications or comparative histories major find themselves poorly equipped to rejoin the workforce. A recent test of online aptitude of > 1000 people from 30 different countries confirmed that while engineers, scientists, and boomers in the USA outscored their peers overseas, the blue collar folks are woefully behind. This is a structural risk and causes future social strain as the haves and have-nots become more and more bifurcated. 3) Boomers have saved relatively poorly. Few will afford the retirements their parents had. Decades of living on credit is finally catching up ... All things considered, this secular market will likely be less pronounced than prior rallies the past century. But who knows, it could be just as awesome. Either way, I'm in for now.
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