Secular bear markets refer to economic conditions where stocks, real estate, commodities and the general economy are extremely volatile with a downward bias.

1. Current Secular Bear
Market Is Not Over…
History Should Be Our
Guide
By Matthew Sammut, Financial Policy Council President, Fortrus
Financial Inc.
www.Financialpolicycouncil.org

2. Secular bear markets refer to economic conditions where stocks, real estate, commodities and the
general economy are extremely volatile with a downward bias. This is caused by underlying
fundamental forces of excesses that were created for long periods of time in the previous growth
cycle. Secular bear markets differ from cyclical bear markets due to the fact that they have a
long-running (15 to 22 year range) and well established fundamental and cycle driven downward
trajectory in markets. They result in a change of behavior and perception among society towards
investments and the financial system.
This article will examine the last two secular bear markets that have occurred in the modern/post
industrialized world economy. Although each secular bear differed from the last, it would be a
terrible mistake not to learn from the past. History is a great teacher allowing us to make better
and more effective decisions.
Great Depression (1929-1945)
One of the main features of the easy money economy of the Roaring Twenties was that investors
could take advantage of investment margin leverage of 90%. This leverage was the fundamental
reason behind the sharp run up in stocks, and this leverage left investors susceptible to market
selloffs, which would come to pass in later years. All secular bears start by a triggering event that

3. begins the de-leveraging process of the previous growth cycle. The Roaring Twenties, stock
market crash and subsequent depression is a perfect example of this.
Similarly, today personal and government debt has once again become a major concern. Included
in this is the recent growth in margin debt which illustrates how current personal debt is now
exceeding debt levels seen prior to the 2008 fiscal collapse. Since the early 1970's debt has
escalated at a pace like we have never seen before in history. Currently, it has reached levels it
was at prior to the financial crash of 2008 (about $350 billion) as the Feds will not allow deleveraging to grab hold yet. On top of this derivative exposure continues to expand to
unbelievable levels, posing major systematic risks. Today derivative levels are presumed to be
over $700 trillion (not a regulated sector so exact totals are not known) – forget any concept of
deleveraging, it is not occurring but it will be forced to at some point.
Many of the bank failures during the Great Depression were one-branch agrarian banks who were
focused on farm loans that could not be serviced once deflation took hold and farmland values as well
as commodity prices crashed. An interesting comparison could be made today as real estate debt and
deflation is one of the primary factors causing our fiscal crisis. Mortgages were extended on inflated

4. prices and many unqualified borrowers. This has led to many foreclosures and about 1 out of 4 homes
underwater (mortgage is higher than the value of the home).
More about “Current Secular Bear Market Is Not Over…History Should Be Our Guide“
Financial Policy Council - http://financialpolicycouncil.org/articledetails.aspx?id=44