About that Global Secular Bear Market

There was a bit of pushback in my recent article regarding the end of the recession in the USA.  I’ve been very vocal about the fact that the likelihood of recession in the USA (economic contraction) was very low in recent years because the US economy remains mired in a balance sheet recession (de-leveraging cycle) that has been met with extraordinary government intervention that is keeping the economy from contracting like it is in many European countries where austerity is ravaging economies.  But that’s just the USA.

The global economy remains stymied by substantial global imbalances.  For instance, in the USA, the problems that caused the crisis are all largely intact.  We have not resolved the private sector debt crisis and the secular trends that led to the crisis are all still very much alive and well.  That means the likelihood for continued instability remains.  Luckily, the government response has been swift and sweeping.   We see such imbalances still in play in places like Europe as well where the single currency system continues to ravage the area.  And finally, in Asia, we continue to see many of the export based dependent nations still trying to develop into consumer driven economies.  These are massive trends that have all contributed to global imbalances.  They’ll be with us for a long time to come.

Regarding the secular bear market – a secular bear market is an environment in which the long-term trend of the market is clearly defined by a new bull market.  We’re in a bit of a gray area here regarding definitions.  Depending on how we cherry pick timeframes one could say we’re in a new bull market or not.  But one thing is clear – the all world index, which accounts for 98% of all global equities, is still below its 2008 highs.  Anyone who bought global equities at the 2007 high is still underwater by over 20%.  So, despite the huge rally in stocks the global headwinds clearly still put us in a sideways to down market environment.  In real terms, you’re down even more.

So, are we still in a secular bear market?  I guess it depends on how you want to define secular, but one thing is clear – the all world equity index is not in a new bull market and remains mired in the sideways market action that has left investors just hoping to break-even since 2006-2008.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Stephen

    For my part if we are talking about defining a market I prefer to it by looking at in an inflation adjusted way,because large parts of market behaviour are either enhanced by,or camouflaged by the exchange of purchasing power in the income stream and the capital value of underlying assets. You really need to adjust that out. Bear markets in particular have a large element of stealth in that returns simply look markedly different by the inclusion of inflation effects.

  • HankB

    Using the all world index and global inflation you’re still down 30%+ in real terms.

  • SS

    I love it when you come out with a nice big truth bomb like this. Thanks for the great chart. I don’t usually track that index.

  • Geoff

    Those who wait until a market breaks its previous high to define a new bull market are wimps ;)

  • Boston Larry

    @Geoff, to me, the fact that we are in a secular bear market should make one somewhat cautious and focused on managing risk, even while trying to capture some gains from intermediate-term upward swings in equities. I don’t think it is advisable to go “all in” to 100% equities here. And I would not go into a buy-and-hold mode here.

  • Geoff

    Agreed, Larry. That was sort of my point. Those who have waited until now to jump in, or until the market breaks to new highs, may be too late to the party. I honestly don’t have a good read on the market right now, which is why I suggested in the thread on the VIX that it might at least be a good time to hedge one’s equity portfolio with a put option. If equities continue to rise, all you’ve lost is the price of the put, which are very cheap at the moment. But if equities drop, you’ll be protected.

  • whatisgoingon

    Cullen what are you thoughts on existence of the kondratieff cycle?

  • Andrea Malagoli

    To me, Minsky’s framework is key. Economic growth is one side of the equation. The other side is the growth of credit. We should know by now that when growth is fueled by ‘Ponzi finance’ (public or private) it cannot last forever and will eventually blow up again.

    So, it is hard to feel comfortable with a, ahem, “recovery” that has come with such increase in government-sponsored ‘Ponzi finance’.

    The question about whether there will be another economic recession or not is secondary, I think, to the question of whether the credit expansion is sustainable or not.

  • Geoff

    I have a file several inches thick on the K-cycle. From my reading, I’ve concluded that nobody seems to agree on exactly what it is. Some think it is a debt cycle, some think it is an economic cycle, some think it is an inflation, or commodity cycle, and some think it is an interest rate cycle. There is no agreement on how long it is. Some think it is 54 years, some think it is longer, some shorter, and some think it fluctuates. There isn’t even an agreement about whether we are currently in the up phase or the down phase of the cycle!

  • http://www.orcamgroup.com Cullen Roche

    I’m not big into the cycle stuff, but I’m no expert there….

  • Rich

    Schumpeter, of all people, did a lot of research on these cycles. His dates correspond to 54 to 55 years cycle length. One big thing I noticed is he started the depression part of the cycle in 1926, not 1929 as many others do. FWIW, and maybe that’s not too much, if you extrapolate out his dating to the present you get (very approximately) Prosperity 1954-1967; Recession 1968-1980; Depression 1981-1995; and Recovery 1996-2010. So we should have started a new Prosperity cycle around the time of the end of the Great Recession. Hmmmm.

  • hangemhi

    Cullen – how is deleveraging going? I saw a chart that I can’t find now that showed we’re back to sustainable levels from which we could grow again. If true, the uptick in real estate could be the beginning of a new bull.

  • Blobby

    Dont forget to add dividends on… thats 60% of returns!

  • Boston Larry

    The div yield on FTSE All World index is 2.2%. Multiply by 5 years since the early 2008 high and you get 11%. So instead of being down by 19% in price only, an investor, after dividends, is down “only” 8% after holding this index for 5 years. I would call that a secular bear.

    By the way, dividends are not ALWAYS 60% of returns. That was found looking at a few 25 year periods in the US stock market. May not apply with today’s mostly 2% yields.

  • James

    Kondratieff cycle is caused by private debt. This last (winter) phase ends when all the bad debt burns out of the system. During the winter, things associated with debt go down

  • OpenThePodBayDoorsHAL

    We look to the past to try and discern what will happen next. But I can’t recall an era in the past that looks much like the present: we have unprecedented simultaneous global money printing by all issuing authorities; we have banks using depositor funds (!) to buy stocks (via repo); we have Pakistani workers writing articles for small-town Vermont newspapers (the internet levelling the global standard of living); and we have stocks reaching all-time highs while investors leave the markets in droves. Yes the consumer is deleveraging, but 60% of that consumer deleveraging has been by defaulting, which just ends up on the public balance sheet, so the debt has not been repaid, just moved around. Will stocks keep going up? Yes, I think so. Does it make any sense? No, none at all.

  • flow5

    The “deleveraging cycle” is so named because power hasn’t shifted to those who know how to turn it. The upcoming blowoff in stocks should commence in March & the markets should begin to collapse April month-end.

  • Tom Brown

    Wow, that is a fairly specific prophecy. I suppose you’re talking about March and April of 2013. What do you mean exactly by “blowoff?” Care to be any more specific? E.g. how badly do you think they will “collapse?”

  • wallyfurthermore

    But you are leaving unaltered a chart that includes a massive bubble, then comparing today’s prices to the bubble top.
    You cannot do that and then correctly make the claim you are making. Use the ‘remove bubble’ function and that chart and then look at it.

  • Yeltsin


    I can’t say the US is out of the woods yet either. Given the demographic trends, political environment, current low yields, and high corporate profits as a % of GDP, where is the upside coming from?

  • inDC

    Thank you for noting this Cullen. What scares me as an investor is a) all of the upticks in the market since 2009 correspond to Fed action and b) even with all of that support, we are still below par. Seriously, considering the lack of organic growth, depressed wages and continued consumer deleveraging hurting GDP going forward, the idea of a market without the Fed moving money into assets scares the hell out of me.