Secular Stock Bear vs. Secular Gold Bull

Editor's Note: Toby Connor is the author of Gold Scents, a financial blog with a special emphasis on the gold secular bull market. Connor's analysis skill of the markets is largely self-taught, though he admits to being an avid reader of Richard Russell and Jim Rogers, among several others. Toby is an avid rock climber and world class weight lifter (for his age). Since March of 2000, the stock market has been and continues to be in a secular bear market. Beginning in March of 2009, the stock market entered another cyclical bull market. This means our current stock market is in a relatively short-term bull rally within a much longer-term secular bear market decline. A really big bear market rally, so to speak. This cyclical bull will serve to separate the second phase of the secular bear from the third, and potentially most damaging, leg down in the ongoing long-term bear market. Click to enlarge Now that doesn't mean the rally since March 2009 is finished. Obviously it isn’t, as most indexes have recently moved to new highs. What it does mean is that one can't make a timing mistake and expect to be rescued by the secular trend. At some point this bull is going to expire and we're going to head back down and break the S&P 500 lows at 666, either nominally or on an inflation-adjusted basis. I suspect it will be both. The reason it’s going to do that is simply because we don’t have a fundamental driver in place to power a long-term bull market and the Fed’s attempts to defeat the bear are actually just magnifying and prolonging the structural problems. For instance, from 1982 to 2000, the stock market was in a secular bull market. The fundamental driver for that bull was the personal computer and the Internet. Those were world-changing technologies. Millions and millions of jobs were created during this period. Click to enlarge There were certainly nasty corrections during the secular bull, for which 1987 is an example. But the secular trend was up. So as long as one was willing to hold onto positions, anyone buying the S&P, no matter how poorly timed, would eventually end up with a winning trade. Simply said, only traders can lose in a secular bull market. Buying high and selling for a loss is the only strategy that can produce negative returns in a long-term bull. On the other hand, a buy-and-hold strategy is a surefire moneymaker in a long-term bull. The problem with the stock market since 2000 is that there is no longer a fundamental driver to produce a long-term bull market. We haven’t discovered the next “big thing” yet. Until the next world-changing technology is developed and comes online all we're going to get are phony cyclical bull markets built on a fundamental base of money printing. And that isn't the kind of fundamentals that can support a sustainable long-term bull market. So what happens? Well, eventually the false fundamentals fail and the market collapses. And all the jobs produced during the false economic expansion evaporate. A recent example is all the construction and finance jobs that disappeared as the real estate and credit bubbles burst. The Fed is now at it again trying to build another bull market on a fundamental base of nothing more than trillions of dollars of liquidity (printing money out of thin air). It didn't succeed when Alan Greenspan tried it in the last decade, and it's not going to succeed for Ben Bernanke in this decade. Until we get the next fundamental driver (i.e. personal computers and Internet 1982-2000, electronics 1945-66, automobile and mass production 1920-29, trains in the late 1800s) we're not going to see another secular bull market for stocks.