Editor’s note: As you know, we’re wary of the US stock market at current valuations.
But we like to keep an open mind. Which is why we persuaded former hedge fund manager Teeka Tiwari and editor of Mega Trends Investing to share his controversial thesis with Diary of a Rogue Economist readers.
Even with the market near all-time highs, Teeka says the S&P 500 is about to launch a brand-new leg skyward…. and will keep pushing higher for another 14 years.
The Best Long-Term Stock Market Indicator I’ve Found…
By Teeka Tiwari, Editor, Mega Trends Investing
If history is any guide, the US stock market is going to begin pushing higher in a few months… and will continue for another 14 years.
An extraordinary amount of wealth will be created. We will see stock market returns at least seven times higher than what we’ve seen since 2000.
How do I know this?
I have an indicator that is so reliable it has foretold market cycles – including booms and busts – decades in advance. It’s predicted every secular bull and bear market since 1920.
And it’s telling us right now that we are on the cusp of a period of massive wealth creation.
A New Secular Bull Market
First, I need to make sure you understand the definition of a “secular” market.
It is a long-term “one-way” directional move in the stock market that lasts between 12 and 20 years. Since 1900, we have had seven of these – alternating secular bull and bear markets.
This 102-year chart shows what these secular markets look like…
The red portions are secular bear markets – when stocks trade sideways or down for an extended period. The green areas show secular bull market periods – when stock prices rise.
But here’s the thing about “secular” markets – within them, we also have shorter market cycles, called “cyclical” markets. This means we could be in a long-term down market (a secular bear market) but enjoy a shorter-term up market (a cyclical bull market).
We had two cyclical bear markets and two cyclical bull markets within the overall secular bear market of 2000 to 2013.
In the early 2000s, investors mistakenly believed they were still in a secular bull market. They kept buying the dips all the way down from the highs in 2000… and sold at the lows in 2003.
Investors also bought stocks at the 2007 high… and kept buying the dips all the way down. They sold in disgust in 2009 – just as stocks were bottoming.
They had the exact wrong strategy for this entire 13-year period.
Individual investors also largely missed out on the last secular bull market of 1982 to 2000.
In 1982, investors were coming off a brutal 17-year secular bear market. They had little faith in the US or in the stock market.
They should have made a lot of money investing over these two decades. From 1982 to 2000, the S&P 500 rose from a low of 102 to a high of 1,552. That’s a compound average return of 16%-plus a year.
The problem is most investors confuse secular and cyclical markets.
When stocks went down, investors should have held on. Instead, they sold – and missed out on future gains.
Knowing the difference between the two would enable you to be in the market when it’s in a long-term climb and exit the market when it’s in a long-term decline.
Fortunately, the indicator I’m going to reveal to you has successfully predicted each and every one of the secular bull and bear markets since 1920.
The New Golden Ratio
I call my indicator the New Golden Ratio. It’s simple to understand – and logically sound.
The New Golden Ratio is what happens when the ratio of middle-aged people to young people shifts. Specifically, when the 35-to-49-year-old demographic becomes larger than the 20-to-34-year-old demographic.
When the number of people in the 35-to-49-year-old age bracket grows larger than the 20-to-34-year-old age group, it triggers a secular bull market.
Academics have studied the New Golden Ratio. What they discovered was that when people enter the 35-to-49-year-old age bracket, they make more money than at any other time of their lives. This gave rise to the phrase “peak earning years.”
My research team and I dug through US GDP data and found that when the 35-to-49-year-old age group is larger than younger generations, its increased spending shows up in larger GDP readings.
Below, you can see that when the ratio is “golden” GDP is always larger than when the ratio was not “golden.”
GDP increases when 35-to-49-year-olds > 20-to-34-year-olds
This makes perfect sense. We have more people with more money experiencing the biggest expenses of their lives.
More important, this 23% increase in GDP filters down to corporate bottom lines.
As you can see below, the compound annual growth rates of corporate earnings boom higher during Golden Ratio periods. All of this increased economic activity causes stock prices to rise.
Rise in GDP = rise in corporate profits (Dow Jones growth)
So let’s recap why the New Golden Ratio works:
• The peak earners in the economy are 35-to-49-year-olds.
• They funnel their earnings back into the economy because this demographic is also facing its highest expense obligation during this period.
• This increased earnings and spending has the effect of causing GDP and corporate profits to rise.
• The 35-to-49-year-olds save more money in the stock market because they are approaching retirement. This contributes to the stock market rising (as do corporate profits and GDP growth).
It’s been 32 years since the ratio last went golden. In 2015, the wait will be over. That’s because 2015 marks the start of a brand-new period when the middle-aged group (35-49) is set to outgrow the younger group (20-34).
And the ratio is set to stay golden until 2028.
This may go against everything you believe to be true. I get that.
But if history is a guide, America is about to embark upon a 14-year period of prosperity.
And stocks will outperform every other financial asset class.
P.S. If Teeka’s Golden Ratio indicator intrigues you, you can’t miss his upcoming webinar. Teeka will show you the way to make advanced trades to “supercharge” your investment returns. These will enable you to harness the Golden Ratio for triple-digit winners. To reserve your space in next Thursday’s webinar, sign up for FREE here.