Founds this nugget on PragCap, courtesy of Comstock Partners. Comstock is one of the reasons I shifted to about 40% cash 2 months ago, and why I'm still currently about 25% cash even after recent buying.
1. Eleven years ago we experienced the strongest secular bull market in U.S. history covering the period from 1982 to 2000 (interrupted only by the 1987 crash). This secular bull market ended with the most outrageous valuations in history. In fact, the P/E and px to cash flow and every other metric you wish to use were more than double the prior peaks over the past 100 years. The NASDAQ valuations metrics were off the charts and NASDAQ hasn’t come close to this high since. All this was accompanied by extreme debt increases over the prior 20 years. This was clearly (in our humble opinion) the start of the present secular bear market which should surpass the secular bear from 1966 to 1982 by a large margin. And in fact, the market did decline sharply for the next 3 years. However, the politicians and the Fed could not handle the pain that it would take to wipe out the overvaluations and excess debt that took place during the bull market. Instead, the Fed lowered the Fed Funds rate from 6.25% to 1% and kept it there for and extended period causing a second bout of “irrational exuberance” revolving around a housing bubble and a secondary stock market bubble from 2003 to 2007. [more]