The “right-tilted ‘W’” does not obviously appear in every index, but as can be seen in the S&P 100 below it is clear, and if you measure other indices with a basket of currencies instead of only the US Dollar (to adjust for inflation), it is easily seen. 

This pattern has been apparent over the past decade, almost exactly as Stamper forecasted back in 2002, and we expect it to continue in this manner until around 2016, when the cycle finally puts in a substantial bottom and moves to a long slow upward phase.  Alas, we also do not believe the pattern has ‘bottomed’ yet, and still has quite a ways to go down before a recovery can begin.  While we do not think we can pinpoint the exact bottom in advance; “we think we will know when we get there.”

The ‘W’ shape is comprised of a series of bull and bear cycles, each with a lower maximum and minimum level than the next, in an overall downward pattern.  Tracing the shape of a ‘W’, the markets will begin from an ultimate high point, like the top of the tech bubble, and head down in a bear market for a period of months (or years), as the left downward leg of the ‘W’.  Then it will go into a bull market, headed up, usually not surpassing the beginning high point of the first leg down, (although as in the housing bubble this was not the case, but it still followed the overall pattern), partially retracing the prior high.  This is followed by the second bear market leg down from the middle top of the ‘W’ shape, which dips even further below the first low point of the first leg down.  Once again, the bear market is followed by a bull market; headed up to another partial retracement of the first bull market, but not fully recovering anywhere near its original high point.  We believe this downward ‘W’ is part of a larger cycle in the great scheme of things (1999/2000 to around 2016), and as we have shown, what goes up must come down if it is predicated on easy credit.

The reason for this long-term forecast is due to massive over-valued asset prices and credit abuse that took several decades to inflate.  It began its path back down to reality when the tech bubble burst, and should hopefully be at the appropriate level around 2016.  That is when we believe the housing (and pension) mess will finally be unwound; at that time market prices should present lifetime bargains as a correction almost always overshoots, this time in the downward direction.  

Notice how our composite (in dark blue) moved opposite the major indices.  Please see our prior article, “Interview with Portfolio Manager, Clark Stamper: How did the Stamper Strategic Long/Short/Fixed Composite achieve a total return of 98% for year 2008?, for more details about how we accomplished this.