The good news is then we set the stage for the next 18-year secular bull market and unimaginable new market highs. You just need to be careful not to do too much damage to your portfolio in the meantime.
Mae West also said that “too much of a good thing is a good thing.” Not so with excesses in the financial world.
Bubbles happen when things go to extremes, and crashes wash out the excess as the bubbles burst. All bubbles eventually burst. It’s just a matter of when.
The 2000-2002 bear market resolved the last stock market bubble. The 2007-2009 recession resolved the housing and financial bubble created by the easy money policies that helped end the severe 2000-2001 recession. And now we’ll need one more burst to correct the debt bubble.
To combat the debt, economy-crippling austerity programs are already under way in much of Europe. They’re only in the beginning stage in the U.S., but I expect the cutbacks to become more intense after the election. How that is done will, of course, be the subject of intense political debate.
Over the last 110 years there have been 25 bear markets, or one an average of every 4.4 years. The current bull market has now been underway for 3.3 years. It will be 4.4 years old next summer, which will also be the beginning of the often negative first two years of the next Four-Year Presidential Cycle. Something to think about.
The stock market doesn’t seem to be worried though, and that’s why you should worry. Now we have global economies worsening, many already in the early stages of recessions, investor sentiment quite bullish and confident (usually a contrary indicator), and corporate insiders selling.
Government debt has reached record levels and governments are unable or unwilling to go further in debt to provide more fiscal stimulus. In fact, pressure is intense for them to begin cutting spending to lower debt.