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.