In a recent post, I discussed the “3-stages of a bear market.”  To wit:

“Yes, the market will rally, and likely substantially so.  But, let me remind you of Bob Farrell’s Rule #8 from our recent newsletter:

Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend

1. Bear markets often START with a sharp and swift decline.
2. After this decline, there is an oversold bounce that retraces a portion of that decline.
3. The longer-term decline then continues, at a slower and more grinding pace, as the fundamentals deteriorate.

Dow Theory also suggests that bear markets consist of three down legs with reflexive rebounds in between.

However, the “bear market” is only one-half of a vastly more important concept – the “Full Market Cycle.”

The Full Market Cycle

Over the last decade, the media has focused on the bull market, making an assumption that the current trend would last indefinitely. However, throughout history, bull market cycles make up on one-half of the “full market” cycle. During every “bull market” cycle, the market and economy build up excesses, which must ultimately be reversed through a market reversion and economic recession. In the other words, as Sir Issac Newton discovered:

“What goes up, must come down.” 

The chart below shows the full market cycles over time. Since the current “full market” cycle is yet to be completed, I have drawn a long-term trend line with the most logical completion point of the current cycle.

[Note: I am not stating the markets are about to crash to the 1600 level on the S&P 500. I am simply showing where the current uptrend line intersects with the price. The longer that it takes for the markets to mean revert, the higher the intersection point will be. Furthermore, the 1600 level is not out of the question either. Famed investor Jack Bogle stated that over the next decade we are likely to see two more 50% declines.  A 50% decline from the all-time highs would put the market at 1600.]

As I have often stated, I am not bullish or bearish. My job as a portfolio manager is simple; invest money in a manner that creates returns on a short-term basis, but reduces the possibility of catastrophic losses, which wipe out years of growth.

Nobody tends to believe that philosophy until the markets wipe about 30% of portfolio values in a month.

The 4-Phases

AlphaTrends previously put together an excellent diagram laying out the 4-phases of the full-market cycle. To wit:

“Is it possible to time the market cycle to capture big gains? Like many controversial topics in investing, there is no real professional consensus on market timing. Academics claim that it’s not possible, while traders and chartists swear by the idea.

The following infographic explains the four important phases of market trends, based on the methodology of the famous stock market authority Richard Wyckoff. The theory is that the better an investor can identify these phases of the market cycle, the more profits can be made on the ride upwards of a buying opportunity.”

So, the question to answer, obviously, is:

“Where are we now?”

Let’s take a look at the past two full-market cycles, using Wyckoff’s methodology, as compared to the current post-financial-crisis half-cycle. While actual market cycles will not exactly replicate the chart above, you can clearly see Wyckoff’s theory in action.

1992-2003

The accumulation phase, following the 1991 recessionary environment, was evident as it preceded the “internet trading boom” and the rise of the “dot.com” bubble from 1995-1999. As I noted previously:

“Following the recession of 1991, the Federal Reserve drastically lowered interest rates to spur economic growth. However, the two events which laid the foundation for the ‘dot.com’ crisis was the rule-change which allowed the nation’s pension funds to own equities and the repeal of Glass-Steagall, which unleashed Wall Street upon a nation of unsuspecting investors.

The major banks could now use their massive balance sheet to engage in investment-banking, market-making, and proprietary trading. The markets exploded as money flooded the financial markets. Of course, since there were not enough ‘legitimate’ deals to fill demand and Wall Street bankers are paid to produce deals, Wall Street floated any offering it could despite the risk to investors.”

The distribution phase became evident in early-2000 as stocks began to struggle.

Names like Enron, WorldCom, Global Crossing, Lucent Technologies, Nortel, Sun Micro, and a host of others, are “ghosts of the past.” Importantly, they are the relics of an era the majority of investors in the market today are unaware of, but were the poster children for the “greed and excess” of the preceding bull market frenzy.

As the distribution phase gained traction, it is worth remembering the media and Wall Street were touting the continuation of the bull market indefinitely into the future. 

Then, came the decline.

2003-2009

Following the “dot.com” crash, investors had all learned their lessons about the value of managing risk in portfolios, not chasing returns, and focusing on capital preservation as the core for long-term investing.

Okay. Not really.

It took about 27-minutes for investors to completely forget about the previous pain of the bear market and jump headlong back into the creation of the next bubble leading to the “financial crisis.” 

During the mark-up phase, investors once again piled into leverage. This time not just into stocks, but real estate, as well as Wall Street, found a new way to extract capital from Main Street through the creation of exotic loan structures. Of course, everything was fine as long as interest rates remained low, but as with all things, the “party eventually ends.”

Once again, during the distribution phase of the market, the analysts, media, Wall Street, and rise of bloggers, all touted “this time was different.” There were “green shoots,” it was a “Goldilocks economy,” and there was “no recession in sight.” 

They were disastrously wrong.

Sound familiar?

2009-Present

So, here we are, a decade into the current economic recovery and a market that has risen steadily on the back of excessively accommodative monetary policy and massive liquidity injections by Central Banks globally.

Once again, due to the length of the “mark up” phase, most investors today have once again forgotten the “ghosts of bear markets past.”

Despite a year-long distribution in the market, the same messages seen at previous market peaks were steadily hitting the headlines: “there is no recession in sight,” “the bull market is cheap” and “this time is different because of Central Banking.”

Well, as we warned more than once, all that was required was an “exogenous” event, which would spark a credit-event in an overly leveraged, overly extended, and overly bullish market. The “virus” was that exogenous event.

Lost And Found

There is a sizable contingent of investors, and advisors, today who have never been through a real bear market. After a decade long bull-market cycle, fueled by Central Bank liquidity, it is understandable why mainstream analysis believed the markets could only go higher. What was always a concern to us was the rather cavalier attitude they took about the risk.

“Sure, a correction will eventually come, but that is just part of the deal.”

As we repeatedly warned, what gets lost during bull cycles, and is always found in the most brutal of fashions, is the devastation caused to financial wealth during the inevitable decline. It isn’t just the loss of financial wealth, but also the loss of employment, defaults, and bankruptcies caused by the coincident recession.

This is the story told by the S&P 500 inflation-adjusted total return index. The chart shows all of the measurement lines for all the previous bull and bear markets, along with the number of years required to get back to even.

What you should notice is that in many cases bear markets wiped out essentially all or a very substantial portion of the previous bull market advance.

There are many signs suggesting the current Wyckoff cycle has entered into its fourth, and final stage. Whether, or not, the current decline phase is complete, is the question we are all working on answering now.

Bear market cycles are rarely ended in a month. While there is a lot of “hope” the Fed’s flood of liquidity can arrest the market decline, there is still a tremendous amount of economic damage to contend with over the months to come.

In the end, it does not matter IF you are “bullish” or “bearish.” What matters, in terms of achieving long-term investment success, is not necessarily being “right” during the first half of the cycle, but by not being “wrong” during the second half.

The following comment was recently making its way around the “twittersphere” suggesting a “new secular bull market” has started.

10. Some longer term perspective on the S&P500 vs the US 10yr Bond Yield. h/t @jfahmy $SPX $TNX pic.twitter.com/Q7ezYTFWyS

— Callum Thomas (@Callum_Thomas) November 9, 2019

This isn’t the first time such a call has been made. 

“Despite concerns in the third quarter, bears never had a strong argument for why stocks were overvalued and the major indexes simply traded sideways for much of the last six months, wrote Robert Sluymer, technical strategist at Fundstrat Global Advisors.

“We ‘continue to view the market cycle as being a normal pause in an ongoing secular bull market similar to what developed in 2016, 2011 and the ‘cycle’ pullbacks that developed during the secular bull markets in the 50s-60s and 80s-90s.”

It is an interesting point. The current bull market certainly seems unstoppable, but the question that must be answered, fundamentally, is if this is indeed a “secular bull market,” and if so, “where are we” within that cycle.

What is a “secular market?”

“A secular market trend is a long-term trend which lasts 5 to 25 years and consists of a series of primary trends. A secular bear market consists of smaller bull markets and larger bear markets; a secular bull market consists of larger bull markets and smaller bear markets.”

In a “secular bull’ market, the prevailing trend is “bullish” or upward-moving. In a “secular bear” the market tends to trend sideways with severe drawdowns and sharp rallies.

However, what truly defines long-term secular markets are valuations, and whether those valuations are contracting or expanding.

The chart above shows the history of secular bull market periods going back to 1871 using data from Dr. Robert Shiller. One thing you will notice is that secular bull markets tend to begin with CAPE 10 valuations around 10x earnings or even less. They tend to end around 23-25x earnings or greater. (Over the long-term valuations do matter.)

As noted above, what drives long-term secular “bull” markets is “valuation expansion.” In order to have the magnitude of “valuation expansion” needed to support a secular “bull” market, you must both start at “under-valued” levels and have the economic factors and investor enthusiasm to support a return to “over-valued” levels.

The problem with the idea that we are currently in a secular bull market akin to the 1950’s or 1980’s has everything to do with economic growth. Over the long-term, stocks CAN NOT outgrow the economy, as the stock market is a reflection of the companies engaging in the economy. This is why “valuations” are so important. Investors, in their “exuberance” can pay more than a company can generate over the long-term. When this exuberance is realized, valuations “contract” to reflect reality.

For several reasons, as we will discuss, the current “secular bull market,” if you can call it that, is likely more akin to the very brief cycle of the 1920’s.

Interest Rates & Debt

The argument that the U.S. has entered into another “secular bull market” is because interest rates are low. While the chart clearly shows that interest rates have hit the same levels as last seen in 1946, the view rates will rise strongly from current levels assumes that the same economic drivers exist today.

Rising interest rates are a function of strong, organic, economic growth that leads to a rising demand for capital over time. If we refer to the GDP chart above, there have been two previous periods in history that have had the necessary ingredients to support rising interest rates. The first was during the turn of the previous century as the country became more accessible via railroads and automobiles, production ramped up for World War I, and America began the shift from an agricultural to industrial economy.

The second period occurred post-World War II as America became the “last man standing” as France, England, Russia, Germany, Poland, Japan, and others were left devastated. It was here that America found its strongest run of economic growth in its history as the “boys of war” returned home to not only start rebuilding the countries that they had just destroyed, but

But that was just the start of it.

Beginning in the late 50’s, America embarked upon its greatest quest in history as man took his first steps into space. The space race that lasted nearly twenty years led to leaps in innovation and technology that paved the wave for the future of America. Combined with the industrial and manufacturing backdrop, America experienced high levels of economic growth and increased savings rates which fostered the required backdrop for higher interest rates.

Currently, the U.S. is no longer the manufacturing powerhouse it once was and globalization has sent jobs to the cheapest sources of labor. Technological advances continue to reduce the need for human labor and suppress wages as productivity increases. Today, the number of workers between the ages of 16 and 54 is at the lowest level relative to that age group since the late 1970’s. This is a structural and demographic problem that continues to drag on economic growth as nearly 1/4th of the American population is now dependent on some form of governmental assistance.

This structural employment problem remains the primary driver as to why “everybody” is still wrong in expecting rates to rise.

However, this is also why whenever there is a discussion of valuations, it is invariably stated that “low rates justify higher valuations.”  The argument is based on an assumption that rates are low BECAUSE the economy is healthy and operating near full capacity.

The reality is quite different. The main contributors to the illusion of permanent prosperity have been a combination of artificial and cyclical factors. Low interest rates, when growth is low, suggests that NO valuation premium is “justified.“

Currently, investors are taking on excessive risk, and thereby virtually guaranteeing future losses, by paying the highest S&P 500 price/revenue ratio in history and the highest median price/revenue ratio in history across S&P 500 component stocks.

Importantly, when talking about “Secular Bull Markets,” the amount of debt in the system plays an important factor. The last time that debt-to-GDP ratios hit such a peak was going into the “Great Depression.” Since debt retards economic growth by diverting savings into debt payments rather than productive investments, it is hard to suggest a “secular bull market” can gain traction given excessive debt levels.

Earnings Reversions

One of the more significant reasons the markets have likely not entered into the next great “Secular Bull Market” is due to the artificial inflation of earnings from massive share repurchases, corporate tax cuts, and excessive liquidity from Central Bank interventions.

Given the current deviation of both earnings from their long-term growth trend, and the deviation from reported profits, as shown below, the eventual mean reversion will likely be brutal.

The Great 9-Year Secular Bull Market

While the idea of a new “secular bull market” is certainly optimistic, it is also a dangerous concept for investors to “buy” into.

As stated above the stock market, over the long-term, is a reflection of the underlying economic activity. Personal consumption makes up roughly 70% of that activity. Given the consumer is more heavily leveraged than at any other point in history, it is highly unlikely they will be able to become a significantly larger chunk of the economy. With savings low, income growth weak, and debt back at record levels, the fundamental capacity to re-leverage to similar extremes is no longer available.

Let’s also not forget the singular most important fact.

The breakout of the markets in 2013, following the two previous bear markets, was NOT one based on organic economic fundamentals. Rather it was from massive monetary interventions by Central Banks globally. The previous secular bull markets in our history were ones which were derived from extreme under-valuations, washed out financial markets, and extreme negative sentiment.

Such is clearly not the case today.

The “secular bull market” of the 1920’s is probably the best example of the cycle we are in currently. Then banks were lending money to individuals to invest in the IPO’s the banks were bringing to market. Interest rates were falling, economic growth was rising, and valuations were rising faster than underlying earnings and profits.

There was no perceived danger in the markets, and little concern of financial risk as “stocks had reached a permanently high plateau.” 

It all ended rather abruptly.

Currently, it is clear that stock prices can be lofted higher by further monetary tinkering. However, the larger problem remains the inability for the economic variables to “replay the tape” of the ’50s or the ’80s. At some point, the markets and the economy will have to process a “reset” to rebalance the financial equation.

In all likelihood, it is precisely that reversion which will create the “set up” necessary to actually begin the “next great secular bull market.” Unfortunately, as was seen at the bottom of the market in 1974, there will be few individual investors left to enjoy the beginning of that ride.

I was digging through some old charts over the weekend and stumbled across this gem from AlphaTrends which explains the “best time to buy stocks.”

“Is it possible to time the market cycle to capture big gains?

Like many controversial topics in investing, there is no real professional consensus on market timing. Academics claim that it’s not possible, while traders and chartists swear by the idea.

The following infographic explains the four important phases of market trends, based on the methodology of the famous stock market authority Richard Wyckoff.

The theory is that the better an investor can identify these phases of the market cycle, the more profits can be made on the ride upwards of a buying opportunity.”

So, the question to answer, obviously, is:

“Where are we now?”

I’m glad you asked.

Let’s take a look at the past two full-market cycles, using Wyckoff’s methodology, as compared to the current post-financial-crisis half-cycle. While actual market cycles will not exactly replicate the chart above, you can clearly see Wyckoff’s theory in action.

1992-2003

The accumulation phase, following the 1991 recessionary environment was evident as it preceded the “internet trading boom” and the rise of the “dot.com” bubble from 1995-1999.

As I noted last week:

“Following the recession of 1991, the Federal Reserve drastically lowered interest rates to spur economic growth. However, the two events which laid the foundation for the ‘dot.com’ crisis was the rule-change which allowed the nations pension funds to own equities and the repeal of Glass-Steagall which unleashed Wall Street upon a nation of unsuspecting investors.

The major banks could now use their massive balance sheet to engage in investment-banking, market-making, and proprietary trading. The markets exploded as money flooded the financial markets. Of course, since there were not enough “legitimate” deals to fill demand and Wall Street bankers are paid to produce deals, Wall Street floated any offering it could despite the risk to investors.”

The distribution phase became evident in early-2000 as stocks began to struggle.

While the names of Enron, WorldCom, Global Crossing, Lucent Technologies, Nortel, Sun Micro, and a host of others are “ghosts of the past,” relics of an era the majority of investors in the market today are unaware of, they were the poster children for the “greed and excess” of the preceding bull market frenzy.

As the distribution phase gained traction, it is worth remembering the media and Wall Street were touting the continuation of the bull market indefinitely into the future. 

Then, came the decline.

2003-2009

Following the “dot.com” crash investors had all learned their lessons about the value of managing risk in portfolios, not chasing returns and focusing on capital preservation as the core for long-term investing.

Okay. Not really.

It took about 27 minutes for investors to completely forget about the previous pain of the bear market and jump headlong back into the creation of the next bubble leading to the “financial crisis.” 

During the mark-up phase investors once again piled into leverage. This time not just into stocks, but real estate, as well as Wall Street, found a new way to extract capital from Main Street through the creation of exotic loan structures. Of course, everything was fine as long as interest rates remained low, but as with all things, the “party eventually ends.”

Once again, during the distribution phase of the market, the analysts, media, Wall Street, and a rise of bloggers, all touted “this time was different.” There were “green shoots,” it was a “Goldilocks economy,” and there was “no recession in sight.” 

They were disastrously wrong.

Sound familiar?

2009-Present

So, here we are, a decade into the current economic recovery and a market that has risen steadily on the back of excessively accommodative monetary policy and massive liquidity injections by Central Banks globally.

Once again, due to the length of the “mark up” phase, most investors today have once again forgotten the “ghosts of bear markets past.” Despite a year-long distribution in the market, the same messages seen at previous market peaks have been steadily hitting headlines: “there is no recession in sight,” “the bull market is cheap” and “this time is different because of Central Banking.”

Lost And Found

There is a sizable contingent of investors, and advisors, today who have never been through a real bear market. After a decade long bull-market cycle, which only seems to go up, you can certainly understand why mainstream analysis continues to believe the markets can only go higher.

What is concerning is the rather cavalier attitude the mainstream media takes about bear markets.

“Sure, a correction will eventually come, but that is just part of the deal.”

What gets lost during these bullish cycles, and is found in the most brutal of fashions, is the devastation caused to financial wealth during the inevitable decline.

Let’s look at the S&P 500 inflation-adjusted total return index in a different manner. The first chart shows all of the measurement lines for all the previous bull and bear markets with the number of years required to get back to even.

What you should notice is that in many cases bear markets wiped out essentially a substantial portion, if not all, of the previous bull market advance. This is shown more clearly when we look at a chart of bull and bear markets in terms of points.

Whether or not the current distribution phase is complete, there are many signs suggesting the current Wyckoff cycle may be entering its final stage of completion. 

Let me remind you of something Ben Graham said back in 1959:

“‘The more it changes, the more it’s the same thing.’ I have always thought this motto applied to the stock market better than anywhere else. Now the really important part of the proverb is the phrase, ‘the more it changes.’

The economic world has changed radically and will change even more. Most people think now that the essential nature of the stock market has been undergoing a corresponding change. But if my cliché is sound,  then the stock market will continue to be essentially what it always was in the past, a place where a big bull market is inevitably followed by a big bear market.

In other words, a place where today’s free lunches are paid for doubly tomorrow. In the light of recent experience, I think the present level of the stock market is an extremely dangerous one.”

He is right, of course, things are little different now than they were then.

For every “bull market” there MUST be a “bear market.” 

While “passive indexing” sounds like a winning approach to “pace” the markets during an advance, it is worth remembering that approach will also “pace” the decline.

The recent sell-off should have been a wake-up call to just how quickly things can change and how damaging they can be.

There is no difference between a 100% gain and a 50% loss.

(For the mathematically challenged: If the market rises from 1000 to 2000 it is a 100% gain. A fall from 2000 to 1000 is a 50% loss. Net return is 0%)

Understanding that investment returns are driven by actual dollar losses, and not percentages, is important in the comprehension of how devastating corrections can be on your financial outcome. So, before sticking your head in the sand and ignoring market risk based on an article touting “long-term investing always wins,” there is a huge difference between just making money and actually reaching your financial goals.

Just recently, Jeff Saut from Raymond James made a very interesting statement with respect to the recent market decline.

“Speaking to last week’s Dow Theory sell signal, we really cannot decide to ignore it, as we did with two previous false sell signals, or honor it because we continue to believe this is a secular bull market.”

It is an interesting point and one that has been prognosticated by several Wall Street analysts and bloggers in recent months like Josh Brown who recently penned:

“If Ari is correct, then we are currently enduring a cyclical bear market but the secular bull market that began in 2013 with fresh S&P 500 record highs is still intact.”

Here is the problem with the analysis.

Secular markets, bull or bear, are not defined by price movements.

For example, if the market is down 20%, the technical definition of a “bear market”, then any rallies and subsequent declines that set new lows, are not defined as a “secular bear market.” It is just a “bear market” where prices are “trending” lower rather than “higher.”

What defines secular, or very long-term, markets are valuations. 

The chart below shows the history of secular bull market periods going back to 1871 using data from Dr. Robert Shiller. One thing you will notice is that secular bull markets tend to begin with valuations around 10x earnings and end at 23-25x earnings or greater. (Over the long-term valuations do matter.)

But, here is the other problem I have with both Josh and Jeff’s thesis of a price based breakout defining a new secular “bull” market.

The chart below compares the last secular “bear” market that ran from 1963 to 1982 as compared the current cycle. Notice the chart for this previous period stops in 1973. I will show you the rest of this period in a moment. Also, importantly, note the level of valuations.

What is important, besides the very similar pattern between the two periods, is the breakout in 1969 did not start a new “secular” bull market. Rather, it was a setup for the next major decline.

“Okay, but the breakout in 1972 was surely the beginning of the new secular bull market – right?”

Not so fast.

The second breakout in 1972, like the previous, was the setup for the final market dive that reset valuation levels back to historic secular bear market lows. That crash also created the necessary extreme negative in investor psychology. The 1974 bear market low was also known as a “black bear market” as investors were so brutally ravaged they did not return to the markets in earnest until nearly two decades later. 

As noted above, it is not just price action that denotes secular bull and bear market periods.

It is valuations.

What drives long-term secular “bull” markets is “valuation expansion.” In order to have the magnitude of “valuation expansion” needed to support a secular “bull” market, you must both start at “under-valued” levels and have the economic factors and investor enthusiasm to support a return to “over-valued” levels.

The ability to have a “1982-2000 affair” is highly improbable. The 1982-2000 secular bull market cycle was driven primarily by a multiple expansion process which began with valuation levels of 5-7x earnings and a dividend yield of 5%. Interest rates and inflation were at extremely high levels and were at the beginning of a 40-year decline which would increase profitability as production and borrowing costs fell.

The first chart shows the secular bear market of the ’60s and ’70s with an overlay of valuations, dividends, interest rates and inflation.

You will notice that at the beginning of the bear market in the 60’s valuations were high while everything else was low. By the end of the secular period, these factors were reversed.

Now, let’s juxtapose that previous period with the much beloved, and hoped for, secular bull market of the 1980s and ’90s.

There were several contributing factors that drove that particular secular bull market:

1. Inflation and interest rates were high and falling which boosted corporate profitability and reduced discounting factors making the value future earnings higher.
2. The extreme negative sentiment of the late ’70s was finally undone by the early ’90s. (At the turn of the century roughly 80% of all individual investors in the market began investing after 1990. 80% of that total started after 1995 due to the investing innovations created by the Internet. The majority of these were “boomers.”)
   
3. Large foreign net inflows to chase the “tech boom” drove prices to extreme levels.
4. The mirage of consumer wealth, driven by declining inflation and interest rates and easy access to credit, inflated consumption, corporate profits, and economic growth.
5. Corporate profits were boosted by the deregulation of industries, wage suppression, outsourcing, and productivity increases. 
6. Pension funding requirements and accounting standards were eased which increased corporate profits. 
7. Stock-based executive compensation was grossly expanded which led to more “accounting gimmickry” to sustain stock price levels.

The dual panel chart below shows the economic fundamentals versus the S&P 500 and the change that occurred beginning in 1983. (Red dividing line)

We can simplify this by overlaying debt versus the underlying economic variables.

Currently, there is simply an inability to create the kind of debt-driven consumption growth seen during the ’80-’90s.

Despite much hope that the current breakout of the markets is the beginning of a new secular “bull” market – the economic and fundamental variables suggest otherwise. Valuations remain at very elevated levels which are the opposite of what has been seen previously. Interest rates, inflation, wages, and savings rates are all at historically low levels which are normally seen at the end of secular bull market periods, not the beginning of one.

The table below shows the difference between 1980 and today.

Lastly, the consumer, the main driver of the economy, will not be able to again become a significantly larger chunk of the economy. With savings low, income growth weak and debt back at record levels, the fundamental capacity to re-leverage to similar extremes is no longer available.

Let’s also not forget the singular most important fact.

The breakout of the markets in 2013 was not one based on organic economic fundamentals but rather through massive monetary interventions by Central Banks globally. The previous secular bull markets in our history we ones which were derived from extreme undervaluations, washed out financial markets, and extreme negative sentiment.

Such is clearly not the case today.

While stock prices can certainly be lofted higher by further monetary tinkering, the larger problem remains the inability for the economic variables to “replay the tape” of the ’80s and ’90s. At some point, the markets and the economy will have to process a “reset” to rebalance the financial equation.

However, it is precisely that reversion which will create the “set up” necessary to start the next great secular bull market. Unfortunately, as was seen at the bottom of the market in 1974, there will be few individual investors left to enjoy the beginning of that ride.