Volatile Sideways Markets…The New Normal

Harry Dent | Monday, February 4, 2013 >>

Bill Gross, the bond king from Pimco, came out last year and claimed there was a new normal for investors: 2% on bonds and 4% on stocks.

We wish!

Most investors would take that deal any day of the week and twice on Sundays if they got such steady returnrns.

And while Bill is a lot more realistic than most investment managers and economists, in this he’s sadly wrong. The new normal is MUCH worse than that.

Sure, stocks are back near their 2007 highs thanks to endless and escalating money printing. From such high levels, the returnrns on stocks are likely to be more like -3% per year on average for the next 10 years.

But the truth is that volatility is the new normal.

Just look at previous long-term bear markets, like 1929 – 1942 and 1968 – 1982. In both cases, stocks went sideways in an increasingly volatile manner.

Here’s what it looked like after the last deflationary Winter Economic Season that followed a great debt bubble…

: Bloomberg, BLS, 2013

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Stocks crashed 87% into mid-1932… then rallied 350% into 1937… then crashed again into 1938… and then again into 1942 and again into 1949.

When you adjust for inflation, the next long-term bull market didn’t really start until 1949…20 years of highly volatile sideways markets later.


The long-term bear market from late 1968 to late 1982 saw FOUR volatile crashes followed by strong rebounds, yet stocks kept hitting new lows when adjusted for inflation.

If that’s not proof enough, look at the next chart…

The Nikkei vs. the S&P 500 and Euro Stoxx 50 on an 11-Year Lag

Source: Business Insider; updated data from Bloomberg

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The Nikkei is the black line, the S&P 500 is red and the Euro Stoxx 50 is blue. Japan’s chart is lagged forward 11 years to account for its earlier Baby Boomer generation and the impact they had on the country’s economy and markets. As for the S&P and Euro Stoxx, their charts represent the current global debt and demographic crisis.

See anything familiar?

You got it. Crash and strong rebound. Crash and rebound. Again and again, with new lows in stocks.

THIS is the new normal.

And as you can see by following the Nikkei line all the way to the end of the chart, we very likely have two more crashes ahead: the first between mid-2013 and early 2015… and the second between late 2017 and early 2020.

These are the two danger periods to prepare for… particularly the one right in front of us. Our research and the technical indicators we monitor obsessively indicate that the next crash will likely be the larger of the two.

And because each crash will be followed by another grand stimulus plan and rebound, we won’t come out of this longer-term bear market until around 2023. That’s when demographic trends turnrn favorable again as the Echo Boom generation finally heads into its peak spending years.

My point is simple: you are not going to be able to just sit in stocks or bonds and earnrn 2% to 4%. The markets will be too volatile. Investors will face ups and downs like the scariest roller-coaster imaginable.

So do yourself a favor. Stop thinking like an investor right now. Instead, think like a long-term trader.

Get more aggressive when we do see crashes every five to six years, especially when stocks go to new lows.

Get more defensive when stocks bubble up, especially to new highs as they will very likely between now and mid-2013.

Then watch out below. Next stop will likely be new lows and that means 6,000 on the Dow!

Stick with us during these increasing volatile and governrnment-rigged markets. We’ll help you navigate the most volatile markets since 1929 – 1942.




Ahead of the Curve with Adam O’Dell

New Normal, New Game Plan

I look at charts all day. Short-term stock price charts. Long-term economic indicator charts. And everything in between.



Harry Dent

Bestselling author and founder of Dent Research, an affiliate of Charles Street Research. Dent developed a radical new approach to forecasting the economy; one that revolved around demographics and innovation cycles.