Viewpoint
Our Macro View
-
We are in a secular (long-term) bear market which started in 2000, and which could result in another lost decade. Though the pendulum will swing between deflationary and reflationary extremes, we see the secular trend as being deflationary most similar in causation and character to the 1930′s.
-
We are (as of November 2010) nearing the end of a reflationary wave that started in late 2008. We expect deflation to intensify its grip on the developed world in 2011. Emerging markets should decouple first into an inflation-driven equity market rise, followed by another reflation wave (possibly the last one of any significance since the Internet crash in 2000) in the developed world into 2012 which should be shorter and less substantial than the 2009/2010 reflation. Subsequent to this the forecast gets fuzzier, but a probable outcome is a multi-year synchronized global deflation characterized by GDP declines into the 2016 timeframe.
-
We do not expect the secular bear market to end until P/E ratios decline into the mid-single digits, as in other past secular bear markets
-
Traditional fundamental oriented investment methods like Buy and Hold and Value Investing will fail or substantially underperform in absolute terms when measured over the duration of the bear market
-
Inflationist ideas are too simplistic and fall apart in a debt based global economy where the monetary base << total outstanding credit
-
Traditional diversification will fail or underperform as a hedge against losses because of tighter correlation between asset classes during the intense deflationary periods of this global secular bear
-
This is a traders market with formidable characteristics from both the 1930′s and the 1970′s
The Absolute Return Newsletter
Puneet Gupta periodically publishes a Market Update to clients of The Absolute Return. View his January 2010 Issue below. To receive the latest newsletter and subscribe to future newsletters, click here and complete the form. Signing up also adds you to the blog distribution lists for THE ABSOLUTE RETURN.
Research and Analysis from Baseline Analytics
Bob Palmerton provides a weekly view of the financial markets as featured in the Baseline Analytics Market Blog (now included on this website as the “Market Tour” blog).
Baseline Analytics provides periodic research linking macro-economic conditions with the financial markets, technical analysis of various asset classes, and develops trading systems. This research and systems development is provided to The Absolute Return as part of the arsenal of its investment management. A selection of research documents can be found below:
U.S. Unemployment Vs. Bottoms in the S&P500 – 1970′s to-date. In this research paper completed in December 2008, Mr. Palmerton accurately forecasts the March 2009 bottom in the S&P 500.
Semiconductors ETF forecast of head and shoulders top
