However, take a look at the chart on this post to get a sense of where we are in the stock market cycle.

What this chart is doing is comparing the growth in the economy to the growth in the S&P 500 index. When the S&P is way overvalued, this chart shows positive numbers as it did in 2000 or 2001. When the S&P500 is undervalued, it shows very negative numbers as it did in the late 1970s and early 1980s.

As you can see, this chart suggests that we are in a secular bear market and that this bear market has a considerable period to go. Other criteria like trailing P/E ratios also send the same signals.

What does this mean over the next few months? Nothing, which is why I prefaced the whole commentary by a "Buyer, beware" statement. However, I would say that his chart does suggest that one must be very cautious about investing in the market as a whole over the medium-to-long term because returns may not be what they were in the recent past.

My own view about the near term is that market sentiment may drive returns until we get a better view as to how long this recession will last early next year. So, over the near term I am not bearish, but I am certainly not bullish.

There are a lot of stocks and sectors (i.e. energy) that have been beaten up and represent value. The key is to discerning which socks are being beaten up because they were too high to begin with and which stocks are being beaten up unfairly because of market sentiment.

I recall you recently mentioned we may have seen the bottom (shortterm?). Is the current trend a short-term bear rally until holidays? thanks!