I was in Budapest for a market conference. The theme was based on Martin Pring’s recent book, ‘Investing in another lost decade'. Pring is the second generation of technicians along with John Murphy and Robert Prechter. Pring’s generation followed the generation of J. Welles Wilder, Joseph E. Granville and Ralph N Elliott.
An evening prior to the meeting, I told Martin that I went through his slides and the price structure seem to suggest that the answer to the lost decade was negative rather than affirmative. He said “I got it all wrong”. He had made an affirmative case. He believed we were headed for a lost decade.
Of course I was biased, opinionated, and seeking a confirmation of my analytical case of DOW 20,000 in Martin's work, which was totally bearish. The visuals were the same but my interpretation contrasted his. The next day when Martin presented the case; I holding true to my opinion (hard to abandon them) reasoned again with some observations and queries after his talk.
This is what he said. The inflation adjusted (CPI) S&P Composite suggested an average of 17.5 years decline with more than 60% fall and an average 4 recessions. The current on-going recession is 12 years old, with 60% decline and just 2 recessions. Also a 17.5 yr. cycle suggest that the bottom should be somewhere in May 2017. Pring's idea was that the current slowdown is small and we are still a long way from a real secular bottom. He laid out the causes of the bear market as structural, psychological and excessive volatility of commodity prices. He illustrated how the commodity momentum and prices were still in a rising trend and interest rates offered a key component of understanding the economic cycle stage. The bond yield price structure from 1865-2012 suggested a continuing downside on monthly basis. Using all these elements Martin explained his six stage business cycle, where the growth period sees a rise in bonds, stocks and commodities followed by a decay stage for bonds, stocks and commodities. According to him we were in the stock upside now, which should be followed by commodities rise and then the secular bear market where everything tops, first the bonds, then the stocks and then commodities. Regionally Martin thought India was in a secular bull market unlike US. He also felt that SSEC china was hitting extreme oversold levels and was getting ready for a bounce.
My observations are as follows. 17.5 year is just one cycle and markets operate with multitude of cycles. Moreover the on-going fall from 2000 was already 12 years old and 60% deep. What was the probability that we were not in a truncated bear leg of 12 years and not 17 years. Above this a bullish case on India and bearish on US needed more than an intermarket failure. What were the chances that India made a new high, 100 % up from Dec 2011 lows and US came 60% back again in the next 5 years (17.5 years average). What about the colour of stocks? How much pure is equity today? Is the line between equity and commodity not diluting? Specially with the fact that credit has eaten up into the large capital intensive industrial sectors and left the economic cycle with oversized early economic discretionary sector and another oversized late economic pharma, utilities and commodity sector. What if the surprise positive correlations between commodity and equity become overextended?
Martin was pleased about my bringing up Benner. He said he did not hear someone bringing up Benner for quite some time. The Benner 2011 lows are intact and markets are positive for 2012 (as of now). A year over year positive move would confirm Benner cycles further. And a plus minus 3 yrs. Error would take us well into 2015. Then half of the current decade would be gone. Above this underperformance for one asset always means outperformance for some other asset. What if the lost decade for one region was the found decade for another? Was sitting out really an option? Well I guess I have to read Martin’s book to get some answers.
