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Business Insider's Blodget: 'We're Still in the Middle of a Long Bear Market'

By    |   Monday, 20 October 2014 01:07 PM

Stocks have enjoyed a long climb since bottoming out in 2009, tripling from those lows at one point last month.

But a harsh drop may follow that upward surge, says Henry Blodget, editor-in-chief of Business Insider.

The cyclically adjusted price-earnings ratio for the S&P 500 index hit 26 last month, its highest level in the past 115 years, except for brief periods during 1929 and 2000, he writes on the news service.

"For the 'new bull market' to continue indefinitely, therefore, the market's P/E would have to continue to keep rising toward the P/E at the historic 2000 market peak — which, it is worth noting, was followed by a devastating crash," he explains.

"Unless something has changed that makes the past 115 years of market history irrelevant (always possible, but probably not likely), it would not be surprising if the biggest bull-market peak in market history was followed by one of the biggest bear-market workouts in history," Blodget writes.

"[This would be] one that might last as long or longer than any major workout period to date."

The bear-market workout period lasted nine years after the 2000 peak, 19 years after the 1929 peak and 18 years after the 1966 peak, he says.

"The big argument among market pundits these days is whether the market is still in the middle of the 'bear' phase that began in 2000 (14 years and counting) or in the middle of a new 'bull' phase that started at the financial-crisis low in 2009 (five years and counting)," Blodget states.

Bulls note that the market moved sideways for 10 years after 2000 and predict that "stocks will now obviously forge ever higher for years as the new bull market continues."

"Bears, meanwhile, . . . see a temporary, Fed-fueled spike in the middle of a long bear market that they believe will see at least one more big downtrend and correction (likely lasting years) before it is done," he adds.

"My guess, for what it's worth, is that we're still in the middle of a long bear market."
But Vanguard Group founder Jack Bogle recommends against selling stocks in reaction to the market's recent decline.

The S&P 500 index dropped as much as 10 percent Wednesday from its Sept. 19 high.

"A 10-percent decline in the market, it's really a nothing, when you get right down to it," he tells CNBC. Given the speculative nature of the market, investors should be prepared for a loss as big as 25 percent, he adds. And they shouldn't panic.

"Don't do something, just stand there," Bogle insists.

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Stocks have enjoyed a long climb since bottoming out in 2009, tripling from those lows at one point last month.
Blodget, bear, markets, bull
Monday, 20 October 2014 01:07 PM
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