Time to Row, or Sail?
By John Mauldin | August 3, 2012
Note to readers: Due to internet connection problems from the Shadow Fed fishing camp inMaine, important information that John wanted to include in this week's letter did not get out intime for the original deadline, and so we are reposting the letter.
Time to Row, or Sail?A Few ImplicationsIt’s Time to Think About Absolute ReturnsRIP, Darrel CainMaine, Home, and Carlsbad
A few weeks ago, Ed Easterling and I updated the work we published almost ten years agoabout secular bear and bull markets in chapters 5 and 6 of
Bull’s Eye Investing.
This week I am inMaine at the annual Shadow Fed fishing trip (for those of us whose invitation to Jackson Holekeeps getting lost in the mail). Ed has graciously agreed to do another piece with me on theearnings, or business, cycle, which is different in timing than the secular stock market cycle but is part of the total warp and woof of the markets. When you combine them, you get a much clearer picture of the markets.Earnings are a topic of great debate. At any given time, you can hear someone on TVtalking about how “cheap” the market is, while the person on the next channel goes on about howexpensive the market is. Today we look at the cycle of earnings, rather than a specific point intime. Let me give you a little preview. In terms of time, this earnings cycle is already longer thanaverage, and in terms of magnitude it is projected to go to all-time highs. Which makes one wantto think about whether current projections are realistic. So let’s jump right in. (Note: This letter sets the Thoughts from the Frontline record for the number of charts, so it will print longer thanusual, but the number of words is about average.)But let me note that this week is the start of the 13
year of Thoughts from the Frontline. Istarted in August of 2000, talking about how the US would be in recession in 2001, analyzing theyield curve, which was beginning to seriously invert and which was also the signal for therecession call for 2007. I began with about 2,000 email addresses, gathered from readers of a previous print letter for another publisher and the readers of my first best-seller; and for whatever reason the list began to grow, and within a few years my entire business model changed, thanks toyou, the readers and friends of this letter. The list has now grown to around 1 million of my closestfriends and is posted on more websites than I ever imagined it would be. Who knew, 13 years ago,that this thing called the internet would be so cool? I am very grateful for your support.I started Thoughts from the Frontline as a free service and hope to continue writing it for