Replies to post #1617 on Town Crier with Chaplains to Hear Stock Positive & (TCCSPN)

[mick]

The Long Cycle In Stock Prices

Using annual inflation-adjusted total return data on an annual
basis, there have been seven strong cycles and seven weak cycles in
U.S. equity real total returns since 1802. These long cycles can be
found in the table below.

Long Cycles In US Equity Prices - Real Total Return

WEAK CYCLE-annual return STRONG CYCLE-annual return
1802-1815 13 years +2.7% 1815-1835 20 years +10.0%
1835-1843 8 years -0.6% 1843-1853 10 years +13.7%
1853-1861 8 years -3.0% 1861-1881 20 years +12.0%
1881-1897 16 years +3.9% 1897-1902 5 years +15.2%
1902-1921 19 years 0.0% 1921-1929 8 years +25.2%
1929-1949 20 years +0.8% 1949-1966 17 years +14.0%
1966-1982 16 years -1.4% 1982-1999 17 years +14.9%

The strong cycles have a median length of 17 years, while the weak
cycles have a median length of 16 years. The median annual real
total return in the strong cycle is 14.0%, with that of the weak
cycle being 0.0%. The year 1999 marked the end of the most recent
strong cycle, and we are now in the ninth year (2008) of a weak
cycle. The trajectory to date of the current weak cycle spans 8.25
years (through March 2008) and looks like this:

Real S&P 500 Total Return Index
12/1999 165.48
12/2000 147.00
12/2001 127.15
12/2002 96.90
12/2003 122.48
12/2004 131.20
12/2005 133.03
12/2006 151.01
12/2007 153.17
03/2008 137.73

For the 8.25 year period of the current weak cycle, the compound
rate of return is -2.2% per year. Weak cycles since 1802 have had
annual rates of return ranging from a high rate of +3.9% to a low
rate of
-3.0%, so the current -2.2% rate seems normal. The range of duration
for weak cycles is 8-20 years, so a transition from a weak cycle to
a strong cycle any time in the next 11.75 years would be normal. How
a number of negative factors that are currently in evidence play out
could well determine the timing of the transition from a weak to a
strong cycle. They are listed below.

1. Politics. Trade and tax policy are two important factors in
determining stock prices. The two Democratic Presidential candidates
are on the wrong side of these two factors, while the Republican
candidate is on the right side of these factors. Thus, who wins the
upcoming presidential election could be a key factor in when the
weak cycle bottoms.

2. The real estate markets. The birth of a new strong cycle could
well coincide with a cyclical upswing in the real estate markets
(commercial and residential) .

3. Corporate profit margins. During the last strong cycle, corporate
profit margins became overextended on the upside, and are now in a
mean reversion phase. Once this phase is complete, a strong cycle
could easily begin. Given the fact that reported earnings on the S&P
500 are now down 23.8% from their August 2007 peak, the mean
reversion process is well underway.