Are We There Yet?

Who are you going to believe,
me or your lying eyes?

–Grouch Marx

Dear Maridel, Dave, Martha and Jack,

Do you remember me writing an essay with this title in January, 2003? Chuck might, since he laughed at my use of a whining kid’s car-trip lament. From a top in early 2000, the Dow Jones Industrial Average had fallen 32%, and the question was, had we reached the bottom of a bear market?

I argued no, and turned out to be right, but nothing in my studies prepared me for the notion that neither had we seen the top of the Grand Supercycle bull market. So now, eleven long years later, the question is, did we see the final top on December 29, 2014?

Yes. Maybe. Probably. Most likely (as I’ve said many times these past years, tops are damn hard to call). The Elliott Wave Principal, my most important study, says little about the amplitude of a bull move, or the time involved, forcing the analyst to make educated, probabilistic guesses about tops.

But one thing Bob Prechter and his Wave analysts have had dead on is the character of stock market tops and bottoms. And, from 2000 on, even during the crash into 2009, the market never lost the underlying weaknesses they described that get built into a bull market when it becomes an investment mania. This is extremely important because, no matter how high they go, manias are always fully retraced. The present one was initiated in 1974 with the Dow at 574. The market will eventually get below that. So, for the last fourteen years the downside risk has been much greater than the upside potential. Hence my caution.

The final phase in any economic expansion is funded by debt. The end comes when the debt is so excessive that it cannot be paid back. This has been the case for years, now. But who would ever have imagined that the central bankers of the globe would take it into another dimension. The numbers today cannot be stated in anything other than invented language. Wave analysts, along with credible analysts from other useful disciplines, just couldn’t get their arms around the magnitude of the bubble.

I began writing these essays to provide you with a perspective on markets because I’ve felt that the risks were not apparent enough to anyone just reading the news, let alone following the advice from the securities industry (they are uniformly bullish today, no surprise). If this turns out to be the end of the bull market, my purpose will also be coming to an end. I won’t need to be telling you about the disasters that are coming–you’ll see them for yourselves.

At some point, when social mood really sucks, I’ll feel it is time for us to start leaning against the crowd and getting bullish as they are getting bearish. Until then (unless I’m wrong again about the top), I don’t expect to be weighing in with my views as often as in the past.

All my love,


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