I have been saying, since early 2000, that we are in a Secular Bear Market. Lately, with the Dow 30 hitting new highs people have been questioning that. But let me explain that by a secular bear market I'm not predicting lower prices. In fact, short term I'm not predicting or forecasting at all. And the secular bear market has nothing to do with prices and everything to do with valuations. So here's the bottom line, what I am predicting is a long steady decline in the PE ratios of U.S. stocks probably down to the single digit level over the next 10 years. And that decline has happened since 2000. I'm not sure about downloading a chart here, so I won't try, but if you could look at such a chart we've declined from PE ratios in the high 40s in 2000 to about 19 now. There was a slight upward blip in 2003, which might be called a mini bull market within the secular bear. But even 2003 is suspect. During 2003, the U.S. stock market went up 25%. But almost every other market in the world went up more than the U.S. market. And the dollar declined about 40% against the Euro during 2003, so if you were fully invested and matched gain of the market, you actually lost about 15% real wealth during that period.

Let's say that the U.S. government decides to inflate its debt out of existence and inflation climbs to double digit rates. People would scream. The dollar might be worth 5 cents in terms of todays dollar and the DOW Industrials might reach 40,000. But during that increase, PEs could easily decline to the single digit range and you'd actually lose a lot in terms of real money. If the dollar was worth 5 cents, then a DOW 40,000 would actually translate into a DOW 2000 in todays terms.

Now does it make more sense? This is not to scare you but to give you a perspective about how to make better decisions. Crisis always involves some opportunity somewhere.

But what about 2006 -- today's mini bull market. And where are some of the opportunities. Well, I'll comment on that in the next post.