|
Published: September 28, 2010
"We face another
seven years or so of bad times," Robert Shiller said this
week.
Through luck or skill, he's been pretty darn right about these
things...
He perfectly timed his prediction of the dot-com bust in his
2000 book Irrational Exuberance. His book on the severe risks in
the housing market came out in 2008.
Here in 2010, he says, "We face another seven years of bad
times." Seven years would put us in 2017. Shiller's rough guess
of seven years fits in with a big-picture idea I have. I call it
the Generational Switch...
The key to making a fortune in stocks (and avoiding getting
obliterated) is having a basic idea of when stocks might have a
long stretch of gains... and when they might do nothing.
This isn't easy to do. But when you look at it over history, a
simple pattern does emerge...
Each generation, the pattern switches.
One generation gets obliterated by the stock market, knocking
everyone out of stocks. Then the next generation lives through a
soaring stock market.
It's not clockwork... but it seems there's more at work than
just chance. Take a look:
|
 |
If you had lived through the Great Depression -- if you had
lived through an entire generation where stocks lost money (17
years from 1930-1947) -- would you ever consider buying stocks
again?
Probably not. Yet that's when you should have bought... Stocks
rose by more than +500% in the next generation, from 1947 to
1965.
Folks who invested heavily throughout the 1970s learned you
could "never" make money in stocks. You needed real assets, like
real estate and gold. Boy, were they wrong in the 1980s and
1990s. Gold fell in half from its 1980 peak to 1999.
If the last investment generation ended around 1999, and if the
pattern holds, then we could see stocks do poorly for something
like 17 years... or until roughly 2016. That's pretty close to
what Shiller is saying.
The popular wisdom in 1999 was that you
always want to be invested in stocks. Nobody wanted gold. But
since the end of 1999, stocks (as measured by the S&P 500 index)
are down, as I'm sure you're well aware. Meanwhile, commodities
(as measured by the CRB Index) are up over +100%.
The last generation of stock investors is still holding some
love for stocks. And they're still a bit afraid to commit to
commodities like gold. But they will. History suggests they'll
have given up on stocks and be fully loaded in commodities... by
2016.
Looking at the last time we were in a similar cycle, I have two
important points to share with you...
1) The March 2009 bottom may be the ultimate bottom in
stocks, not 2016. In the last great bear market ('65-'81),
the ultimate bottom was in 1974, not '81. Investors spent the
next few years giving up on stocks and looking to "the action"
in commodities.
2) Commodity prices could go "parabolic" in the coming years.
They did in the late 1970s, at the very end of their bull
market. It's what happens at the end of great bull markets. It's
just like stocks in the late 1990s -- they "went parabolic" at
the end of their bull market.
So there is some good news...
Commodities could go parabolic from here. And stocks may have
already bottomed. So even though it could be years (until
roughly 2016) before another rip-roaring bull market in stocks
arrives, we may have seen the lows for this generation.
Or none of this could be true, of course... But it has worked
roughly this way for the last 100 years.
--Steven Sjuggerud
Editor
Daily Wealth
Note: This article originally appeared on
Daily Wealth |
