This is a chart I quickly took from Yahoo! Finance and then added some things. It is the S&P 500 from about 1949 to today 2009. I approximated the years due to the large time frame covered and I could easily alter the years a little to be more precise, but for this discussion that is not necessary. It represents something known as cycle theory. If I had made the chart larger you would see another bear market prior to this chart, and yet another bull market before that. As you can see, there is a clear pattern of long bull markets and long bear markets.
Analysts, economists, and market watchers always disagree over the market so I can only give you my take on why this occurs. I think two factors are mainly responsible. The first is human nature. Inevitably, we over indulge, thus pushing our economies to the brink based on too much debt and over consumption. Eventually, the bill comes due and then we bust. The second reason is government incompetence. You should know that these long bear markets coincide perfectly with terrible government economic policies. While the government could never stop a bust from occurring, they can and do prolong the bear markets by interfering with the economy. Currently, we have an out of control government that is firing CEO’s, nationalizing huge companies, bailing out others, borrowing unprecedented amounts of money, and then spending it irresponsibly. Hmmmm, sounds like this fits perfectly doesn’t it?
Here comes the problem. If this holds true, then we could have another 6-8 years of an essentially flat market. From here, it could be down a little, or up a little , but it won’t make new highs if this cycle theory chart holds true.
Tags: Capitalist, Economy, Government, Investing