Monday, December 17, 2007

Where's Joe Sixpack?

Somehow investors have gotten the impression that every bull market will continue higher until the public enters the market. I think this is a fallacy inspired by the recent bubbles in Tech and real estate. In the top chart we see the secular bull market that started in 82. I've marked the 4 year cycle lows. Note that only twice did we see the public come into the market. The first time was prior to 87 as the first phase of the secular bull was topping. Keep in mind this was nothing compared to what happened in 99 & 2000. The fifth year decline came along and wiped out Joe Sixpack. That cured him from wanting to invest in stocks for the next 10 years or so. It wasn't until after the 98 cycle low that the public had forgotten 87 and was ready to pile into a "sure thing". The public only piles into an asset class as it enters into the final bubble phase. I see the rational used that this market can't be topping because the public isn't in yet. I think it's way too late for us to expect the public to pile in. That happened in 2000. The market isn't in a bubble it's in a secular bear market. I have a feeling that to expect every bull move in the stock market to draw in the public is just ridiculous. History shows that it only happens rarely.

Now let's look at Gold. I think that the first phase of the secular bull ended in 06. The public was starting to take notice of gold as it made the parabolic rise into the May top. Unfortunately we then saw the fifth year decline and that cured the public of wanting to invest in Gold. Witness that Gold recently touched the $850 level and nobody is talking about buying Gold or Silver. If anything they think Gold is in a bubble. Hardly :) Gold will be in a bubble when everyone is buying it not when everyone thinks it's too expensive.