Playbook: The Great Debate-Secular Bear Market

This composite chart courtesy of the Strategy desk of Morgan Stanley Europe shows what the average of the past 19 major Bear markets globally have looked like. The X marks the spot where we currently stand in their opinion. This is the long term secular Bear's argument. They think this bear market rally will be followed by another large correction and then stocks will essentially trade sideways for years. Fundamentally they would be in agreement with many of the points listed by Doug Kass in our post from Friday. They would argue that no new secular bull market will begin until we take out all the old market highs.

I have no way of knowing whether this chart will end up being an accurate forecast of future events, my crystal ball isn't that accurate. I'd be willing to bet though that the authors of this article have no better view of the future than me. This is however the Bear's view and it must be respected. I would note that even if they are correct my opinion is that there will be plenty of opportunities to make good quality investments along the way.

Tomorrow we will show the other side of this debate and let the Bulls have their say. We'll follow it up with my own views about the future. My views will come in two parts, the first is a attempt to look out longer term and then we'll follow up with what we think might happen in the short run.

Source: The Aftermath of Secular Bear Markets. Authors: Teun Draaisma, Ronan Carr, CFA & Graham Secker, Edmund Ng, CFA and Matthew Garman, Morgan Stanley European Strategy 10 August 2009:
Chart provided from The Big Picture.

Link: http://www.ritholtz.com/blog/2009/08/aftermath-of-secular-bear-markets/#more-36695