19 May 2006

"The Bearish Evidence Is Overwhelmning" by Bob Bronson 05/17/2006

Financial Sense "The Bearish Evidence Is Overwhelmning" by Bob Bronson 05/17/2006: "Well before the U.S. stock market made its all-time high on a capitalization-weighted basis on March 24, 2000, we presented our case for the beginning of a secular bear market period, or what we quantify as a Supercycle Bear Market Period.

The Supercycle Bear Market Period, which started before that stock market high point, is ongoing, since the risk-free rate of return continues to cumulatively outperform the total return (dividends reinvested) of the S&P 500 index, with returns of about 18% vs. -6%, respectively, since the market high in 2000. This 25% higher performance differential is especially significant, given the total return of 90-day Treasury bills has no drawdown or redemption risk, while the stock market is always highly volatile and has already had a drawdown of 50% during this period.

History shows that during Supercycle Bear Market Periods, an economic slowdown like the present one is not a “pause that refreshes,” as widely promoted by the bullishly-biased CNBC talking heads. Rather, it almost always turns into a full-fledged recession, which is typically twice as frequent and twice as severe (magnitude and duration), on average historically, as during Supercycle Bull Market Periods. This record is demonstrated by our 110-year stock market and economic timing model, SMECT: model

Furthermore, our work shows the current Supercycle Bear Market Period – the fifth since 1870 -- is only about half over, with the worst psychological impact on investors yet to come when the stock market makes lower lows. This is because the current consensus mood of investors, which has been bullish and complacent, especially at the recent stock market highs, has been fueled by the fi"

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