Are the big bull markets over?

May 10, 2013

Baltimore, Maryland

Not much action following the new Dow high. Not much follow-through.

But not a big breakdown either.

As near as we can tell, stocks have been driven up by the Fed's EZ money. Investors expect more EZ money. So they think stocks will go up more.

We are attending an investment conference in New York. What has struck us so far is how optimistic the young investors are. They think stocks always go up.

"I'm 36 years old," one explained. "That means I was too young to get in on the boom of '82 - 2000. All I've seen are stocks going up and down. They're just a little bit higher today than they were in 2000 - when I was just 23 years old.

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"But when I look back on the history of the stock market, what I see is a market that takes big leaps forward...then we get a period in which prices don't go anywhere...and then we get another big leap ahead. I want to be sure I don't miss that next big move to the upside."

His reading of stock market history is much different from ours. What we see is a market that, in inflation adjusted terms, goes up...and then goes down. It can go up for decades...and down for decades.

The next big move to the upside might not begin for another 5 to 10 years. In the meantime, investors could lose half or two-thirds their money.

Then again, there may never be another major bull market cycle for all we know. The bull market of the '50s and 60s was based on growth and output expansion. The bull market of the '80s and '90s was based on credit expansion.

What will drive the next bull market? Growth has slowed to a crawl. Populations are falling. Credit cannot expand forever. Are the big bull markets over?

We don't know. But we wouldn't stake our financial futures on catching the next one anytime soon.

"But stocks have been going up since 2009," replied the young man. "Companies have record profits. There are lots of new technologies and innovations coming on-line. I don't see any reason for this bull market to end. It could go on for many years."

Yes, it could.

But this is a market driven by illusion...we explained. It's an illusion created by phony money.

"Aw, c'mon...the Fed's new money is just the same as the old money."

Well, yes...and no. Each of the old dollars represented a certain amount of goods and/or services. That amount was measured by the "price" of things.

Now, the Fed is adding more dollars - at a rate of $85 billion per month. Other central banks are doing the same...with the Bank of Japan leading the way. The BOJ is adding, proportionately, much more money that the Fed.

At the same time, the economy is NOT adding anywhere near as much in terms of goods and services. Real private sector output is about the same today as it was 10 years ago.

This is what makes this new money much different from the old money. It comes with no new output behind it. So, it will inevitably and eventually have to come to bear on existing output...not new output. The only result can be higher prices. How much higher? No one knows. It depends on the velocity of money...which depends on how the economy is doing...and how eager people are to get rid of their dollars. (That is, on their perception of the quality of their money.)

One way or another, the dollar will be worth less than it is today. How much less? Only time will tell.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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2 Responses to "Are the big bull markets over?"

Dinesh K

May 10, 2013

In the present market, nothing looks exciting, there is gloom from the political side, tremendous in the rights of small shareholder by sebi introducing 6 auctions every day on 2050 shares by terming it illiquid. for whose sins are all the small shareholders holding such stocks punished.just 0.001% of the market cap is caught in the web of circular trading and sufficient powers are given to sebi to catch hold of such notorious categories of people which they fail to do their duties and bring about totally irrational avaricious laws for total detriment of the small shareholders. in this grim scenario who will do research in so many gems lying in that group of 2050 shares. Don't worry sebi, Indian investor is much clever than your laws, They will punish the market by shunning it and sebi will come begging back to small shareholders to invest in the equity market. market is illusion right now, problems galore and difficulties abundant.small shareholders should sell all shares other than A group holdings and invest only in FM CG shares because they alone have got the guts to make government and sebi listen to them. if they don't they will pack their bags and they will give the minority shareholders a good exit price.



May 10, 2013

Predict something long enough and it will happen. I have been reading similar analysis from you Bill for the last 4 years and markets have only gone up!

Yes, what he repeats every day is logical, but if you had only listened to his views / scaremongering on equities , you would have missed out on a huge rally.

very cynical view of the world indeed!

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