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The U.S. balance sheet recession is a deflationary economic Supercycle Bear Market Period, or Supercycle Winter.
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Preface from dshort: Regular visitors to this website know my interest in long-term market perspectives and regard for Robert "Bob" Bronson, who has spent decades analyzing market history. The text below arrived in a recent email.
What some now call a "balance sheet recession" in the U.S. is what we forecasted more than a decade ago. The schematics and table below summarize what we fundamentally and technically quantify as a deflationary economic Supercycle Bear Market Period, or Supercycle Winter.
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- We have documented our discussions with others over many years who have used the terms K-Cycle, Kwave or Kondratieff Wave, with Season(s), and the like. Our decades long publishing record clearly establishes that we were the first to use these terms with Season(s), as well as the first to quantify them economically or otherwise fundamentally (Kondratieff and Schumpeter did not) or even technically. Most importantly, we were also the first to forecast their applicability to the secular period dating variously from the late 1990's through March 2000, depending on the metric under consideration. See As Forecasted — A 12-Year Retrospective. We more than welcome further inquires (email link below).
- The terms "more" and "less" refers to the combination of cyclical frequency and severity (duration times magnitude) — see SMECT: A Forecasting Model That Integrates Multiple Business and Stock Market Cycles Since 1896.
- The terms "bull" and "bear" refer to the over- and under-performance in Supercycle (secular) trends of excess total return compared to the risk-free return and other asset classes
- P/E includes quantification of investor mood (animal spirits) — see our earnings-capitalization stock-market valuation model: Quantifying and Forecasting an Equity Risk Factor.
- See our severity (magnitude and duration) quantification of the 33 most severe bear markets since 1895: Exhibit E in #2 above.
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Richard Koo, chief economist of the Nomura Research Institute, explains why the Japan balance sheet recession, or Supercycle Winter, is so instructive for the current U.S. situation (click here to view a PDF file of Koo's presentation).
For more information contact Bob at
bob@bronsons.com.
Afterword from dshort: In a subsequent email exchange with Bob, he explains that the December 2007 callout in the second chart "was essentially a forecast at that time when the last recession started, which has proven quite accurate as you've essentially pointed out with the current data for the 10-year T-note yield and S&P 500 index one-year P/E ratio. Below is an additional chart showing Bob's historical perspective on the P/E ratio for the U.S. stock market.
