rss

Ed Easterling’s 12 Rules of Market Cycles

Here are Ed Easterling’s 12 Rules of Market Cycles:

1. Secular cycles are driven by the inflation rate (deflation, price stability, and higher inflation)

2. Secular bulls occur when P/E starts low and ends high over an extended period

3. Secular bears occur when P/E starts high and ends low over an extended period

4. Cyclical bulls and bears are interim periods of directional swings within secular periods

5. Cyclical cycles are driven by market psychology, illiquidity, or other generally temporary condition(s)

6. Time is irrelevant to the length of secular stock market cycles

7. Secular bulls require a doubling or tripling of P/E

8. Secular bears occur as P/E stalls and falls by one-third to two-thirds or more

9. When real economic growth is near 3%, there is a natural floor for P/E between 5 and 10, a natural ceiling around the mid-20s, and a typical average in the mid-teens

10. If economic growth shifts upward or downward for the foreseeable future, the natural range moves upward or downward, respectively

11. Inflation drives P/Es location within the range; economic growth drives the level of the range

12. The stock market is not consistently predictable over months, quarters, or periods of a few years; the stock market is, however, quite predictable over periods approaching a decade or longer based upon starting P/E

The Stock Market is like a Beautiful Woman

The stock market is like a beautiful woman, always 
appealing 
challenging
fascinating
captivating
mystifying.

Appealing     The stock market appeals to everyone – the ignorant and illiterate, barbers and bartenders, brokers and bankers, best and brightest, professionals and people from all walks of life.

Generally, the stock market is perceived as a marketplace to get-rich-quick, make a fast buck, make a killing and turn rags to riches.

Challenging     The stock market challenges all kinds of players – gamblers, speculators and investors. In the game of sports, amateurs play against amateurs, professionals challenge professionals, and olympians compete with olympians on different level playing fields; whereas in the stock market, novices, amateurs and professionals challenge each other on the same level field. (more…)