One of my followers sent me this information on the current Secular Bear Market this morning.  I thought that it would be of interest to my subscribers.

Secular Bear Market: Are We Still in One?
by Van K. Tharp, Ph.D.

Since my book Safe Strategies… came out, I have been saying that we are in a secular bear market. Most of my beliefs about this come from the wonderful work of Ed Easterling (Unexpected Returns: Understanding Secular Stock Market Cycles) and Michael Alexander (Stock Cycles: Why Stocks Won’t Beat Money Markets Over the Next Twenty Years). Alexander’s book was published at the end of the secular bull market in 2000. Easterling’s web site had predicted a bear market starting in 2000, even though the book wasn’t published until 2005.

Secular Markets

A lot of people try to define a secular market by the health of the economy; however, this is inaccurate. There are periods in bear markets when the economy does quite well, and there are periods in a bull market when the economy can be doing poorly. The following table shows the bull and bear secular markets since 1900. Both types of markets had periods of economic expansions and contractions to various degrees within them.

Secular markets relate to the cycles of corporate valuations based on the price earnings (PE) ratio. During a secular bull market, PE ratios go up. During a bear phase, the PE ratios go down. This has nothing to do with any underlying economic conditions, although bear phases do seem to correspond to inflationary or deflationary periods.

So what’s been happening to the PE ratio since 2000? Robert Schiller’s version (which is based upon a smoothing function) looks pretty much as expected. The PE has dropped dramatically since 2000. The following chart is from Schiller’s website: http://www.multpl.com.