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Monday, May 04, 2015 9:56 PM

Is the Bull Market Super-Cycle Nearly Over? Bill Gross Thinks So, But Here's a Common Sense Approach

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Using a Prechteresque term, Bill Gross Says the "Bull Market Super-Cycle is Nearing End".

The attempt by global central banks to cure a debt crisis with more debt doesn’t have much further to run, which will end a rally that’s lasted three and a half decades, the 71-year-old manager wrote in an investment outlook for Janus Capital Group Inc. Investors should stop focusing on price appreciation and instead look to “mildly levered income,” such as his recommendation to short German government debt, he said.

“Credit-based oxygen is running out,” Gross wrote in the outlook, titled “A Sense of an Ending,” in which he compared the final stages of the market cycle with his own mortality. “I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang.”

Gross, the manager of the $1.5 billion Janus Global Unconstrained Bond Fund, acknowledged that his calls for the end of the bond rally in both February and April of 2013 were too early. This time around, he noted that he’s in prominent company, as investors including Stanley Druckenmiller, George Soros, Ray Dalio and Jeremy Grantham have cautioned that financial markets may be overpriced or bubbly, potentially setting the stage for lower returns.

Gross, who referenced Julian Barnes’ novel “The Sense of an Ending” in his outlook, said he continues to see a subdued interest rate environment for a prolonged span. He advised investors last month to leverage returns in an environment of persistently low interest rates and inflated asset prices.
Elliot Wave

Curiously, the article fails to mention the Elliot Wave Grand Supercycle Principle originally formulated by Ralph Nelson Elliott but whose main proponent is Robert Prechter.
Modern application of Elliott Wave Theory posits that a Grand Supercycle wave five is completing in the 21st century and should be followed by a corrective price pattern of decline that will represent the largest economic recession since the 1700s.

In technical analysis, Grand Supercycles and Supercycles are often compared to the Kondratiev wave, which is a cycle of 50 to 60 years, but these are in detail distinct concepts.

Some Elliott Wave analysts believe that a Grand Super Cycle bear market in US and European stocks started in 1987 When that was proven incorrect it was later revised to be 2000 and then 2006. Others view the 2000-2002 bear market in US stocks and 2000-2003 bear market in European stocks as being of lesser degree, such as Primary, Cycle, or Supercycle.
Grand Supercycle?

So is this the "grand bull market supercycle". I don't know. Nor does Gross or anyone else.

I am a general believer in Kondratiev waves, but they get longer over time because people live longer. Such theories aside, it's perfectly obvious that stocks are horrendously overpriced.

Common Sense

What matters now is common sense. And common sense is the same now as it was for technology stocks in 2000, housing in 2006, and stocks in 1929. From a practical standpoint that's all you really need to know. It matters not if this is a K-Wave or a supercycle.

The supercycle issue is theoretically interesting, but meaningless in practical terms.

By the way, these cycles and supercycles differ from country to country.

Take a look at Japanese equities. It should be crystal clear that Japan is not on the same path as the rest of the world. Australia, Russia, and Brazil may not be either.

Mike "Mish" Shedlock

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