Five More Years of Hard Times
By Staff News & Analysis - April 15, 2010

The bear market could drag on for another five years or more, says Bill Spiropoulos, CEO of CoreStates Capital Advisors. "We continue to climb the wall of worry. No one believes this thing. And all the negative tales about how the world is going to end next month? They're wrong," he said. Investors should prepare for the bear market to stay, but Spiropoulos predicts that the Dow will reach 12,000 this year. "When I say secular bear market, we're talking about a sideways trend," Spiropoulos told CNBC. After the bear market ends, inflation will erode into some investors' portfolios, he said. "Once we return to normalcy, which we are doing, the core rate of inflation is going up and you see these negative returns in the bond market are going to eat people up. But it's not going to be the end of the world and the bear market can go on for 5 to 6 years," he said. Dennis Wassung, portfolio manager at Cabot Money Management, said the economy is showing signs of improvement. – MSNBC

Dominant Social Theme: We will soldier on.

Free-Market Analysis: We're on board with this prediction. We've long believed that the current cycle (we won't call it a bear market in this article but fiat-money collapse) would last about 15 years. What we weren't sure of then and are not sure of now is how the collapse will end.

Maybe Spiropoulos anticipates a return to business as usual but we do not. We figure other options are more likely. By the time the bloodletting is over we have the idea that the dollar will not be a full-fledged reserve currency anymore, or that regional currencies will be far more common, or that some sort of money metals standard, or private-market standard, will have been adopted, maybe even a variant of free-banking in certain parts of the world.

Also, we think we have a difference of opinion with Spiropoulos over what has caused the current collapse. Spiropoulos anticipates a "return to normalcy" followed by a rise in inflation. So far so good. But we think his predictions of normalcy imply that the current crisis was a run-of-the-mill business cycle downturn – only one that has given way to a longer-than-usual recovery.

Here's a definition of a secular bear market from

A secular market trend is a long-term trend that usually lasts a decade or longer. Secular markets are seen not only in stocks, but also in currency, commodity and bond markets. Where a bull or bear market is driven by business cycles, a secular market is longer-term, and usually driven by strong, lingering factors. These secular bull and bear market trends have also been called "supercycles".

A bear market is a prolonged period in which stock prices fall. Unlike a "correction", bear markets are usually accompanied by widespread pessimism and a recessionary environment of high inflation and unemployment. In a secular bear market, this weak sentiment produces selling pressure over an extended time period. Many cite the 1966-1981 bear market as a secular bear market (while 1982-2000 bull market serves as an example of a secular bull market).

The usage of these arcane terms and strange timelines are likely confusing to those who might wish to understand what is really going on. In fact, the 1970s downturn was triggered first by a stock crash in 1969 and then President Richard Nixon's abrogation of the Bretton-Woods gold standard agreement. By dating a secular bull market back to 1966, the reasons for what actually occurred in the 1970s are minimized or at least blurred.

Additionally, the article does not explain what a bull market is – how it's caused – or what a secular bull market is. No wonder people are confused about finance. But we will give it a try. We will attempt to "unpack" it.

Free-market economics defines business cycles within the Austrian (Misesian) tradition, and the definition is aimed at modern "fiat-money" Western economies. First the Western world's mercantilist central banks print too much money which tricks business into overproduction. Basically, they create money out of thin air and then use the mechanism to drain the "real" wealth and productivity from the unknowing public. Confiscation via government sanctioned counterfeiting, if you will. Eventually there is a bust as the market itself realizes the extent of the overproduction, or perpetration of the fraud – so to speak.

During the "bust" part of the cycle, the distortions from the overprinting of money unwind as a growing segment of the public shockingly awaken to the truth hidden beneath the clever propaganda cloaking this age-old cyclical scam. Businesses go broke and industry contracts. Absent government interference, money becomes more expensive (disinflation or deflation) during this leg of the fiat-contaminated business cycle. In an ordinary business cycle – as defined by free-market economics – the cycle might take place over a five-to-seven year time period with perhaps three-to-five years comprising the bull market and one-to-two years comprising the bear.

So how would we define a secular bear market within this context? A secular bear market, from our point of view, would simply be a deeper and longer unwinding of a fiat money boom due to the widespread dissipation of public confidence in the "system" – usually provoked by some form of communications medium enabling truth to expose dishonest practices. Little business cycle pullbacks are nothing more than dips on the way up the inflationary slope. Throughout the past 60 years, since 1950, anyway, the West and America in particular has been ratcheting up fiat money production. Every time there was a downturn and the economy began to unwind the economic distortions, Western central banks inflated again.

Visualize a spring that is trying to uncoil. But, instead, the person holding the spring winds it tighter and tighter. This does not stop the spring from uncoiling but only makes the ultimate uncoiling worse. That is what happens before a secular bear market. The reason a secular bear market lasts such a long time is because the economic distortions are so deep. In the case of THIS financial crisis, the game is virtually over. The fiat-money structure that was created after World War II has been blown apart. The spring, wound too tightly by repeated stimuli, has exploded.

Western central banks, and the power elite that runs them, are doing the best they can to re-inflate Western economies as they have in the past. The elite has corporate/banking/stock market leverage (these areas respond best to fiat-money printing), which is why large corporations and stock markets throughout the West may appear eventually to be healthier. But while stocks and corporations can be stuffed with fiat money, the larger economy is broken and what money trickles down, leaks away. This is why jobs are not coming back. Jobs are generated for the most part by entrepreneurial entities – small businesses. Western economies are shattered and thus are not producing these jobs.

Fiat money can stimulate stocks but it cannot rebuild badly distorted economies. Such events do not occur very often, perhaps every 50-75 years within any given fiat money cycle. But since the advent of the world's most powerful central bank, the Federal Reserve, the West has seen two Great Unravelings – the Depression of the 1930s and the Financial Crisis of the 2000s. This works out to one definitive unraveling every 50 years, or once every two-to-three generations. Not a very good track record.

The 20th century's worldwide Depression was ameliorated by a war and subsequent reconstruction. But it is questionable whether a war – even a large war – would re-stimulate confidence in Western economies this time around. This is the reason that those who truly understand the status of things (Ben Bernanke comes to mind) sound so gloomy, or at least cautious, when speaking of a recovery.

We would take the point of view that this latest Great Unraveling when combined with the power of the truth to flourish on the Internet – which has educated people about the reality of this sick system – may spell the end of 20th century-style fiat-capitalism – a system that has been draining the wealth and productivity of the American people, as well as those in other nations, for far too long now. The power elite no doubt means for the current fiat collapse and crisis to give rise to a more seamless global financial regime supervising regional currencies along with an ever-increasing authoritarian state to keep dissidents in check.

After Thoughts

We are not so sure the elite will achieve its goal this time around, not even if it is successful in starting a war with Iran – as we discussed yesterday. The elite's dominant social themes are colliding with the relentless education, reporting and truth-telling of the Internet. The longer this state of affairs persists, the more tenuous the elite's fear-based promotions become. It's fine to speak of bull markets and secular bear markets, but what the world is facing, especially the Western world, is a generational unwinding of a (fraudulent) from our point of view, money system. That's no bull.

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