1. A Secular Valuation Contraction began in 2000. It has not yet been completed. The price low was made in 2009 but the valuation low still lies ahead of us.

(The last Secular Valuation Contraction spanned 1966-1982; the price low was in 1974 but the valuation low was not made until 1982.)

2. We are in the third Four-Year Cycle of the Secular Valuation Contraction. The first Four-Year Cycle ended in 2003 and the second, following a Bull Market Extension, in 2009.

David Fuller's view I suggest you read the next three brief points in Walter Deemer's report because his conclusion, if I interpret it correctly, is different than mine and the outcome is important for investors.

Secular valuation contraction cycles are infrequent and this is only the second one that Walter Deemer and I have been living through since our financial careers began. Moreover, the background economic circumstances are inevitably different throughout the valuation contractions.

Their common ground is they represent the lengthy interval between the end of one secular bull market and the eventual beginning of the next approximately two to three decade mostly bullish phase. There are technical similarities, including at least one severe cyclical bear market.

In all candour, analysis over these long time intervals is at best an educated guess, not least because of the many unknowable events that lie ahead. Nevertheless, Walter expects a "severe" bear market, commencing between now and next March. He did not include a number with that forecast but it sounds worse than what Eoin and I expect.

If you look at this 50-year semi-log chart of the S&P 500 Index, you can see the last secular valuation cycle between 1966 and 1982. (Note: recreate this in your Chart Library, click on the 'Tracking On' function in the toolbar, and you will see it more clearly.) Given the upside breakout that has occurred, I am wondering if today's action could be similar to what occurred between June and November 1980. That November high was followed by a cyclical bear trend, which ended in mid-1982 as the next secular bull market began.

While it would be little more than a coincidence if the time spans of these two valuation contraction cycles were similar, the previous one lasted about 16.5 years. If I measure the current cycle from March 2000, 13.5 years have now elapsed. Subscribers know that I expect a further, medium-term choppy period for most stock markets. Eoin and I would not be surprised if the S&P 500 Index fell back to the 1500 to 1400 range at some point in the next few years. If so, most other stock markets would fall somewhat further. However, we regard that as a medium-sized risk and it would be a buying opportunity, because we also think that the next secular bull market should be evident before the end of this decade.

The precondition for that advance would be some valuation contraction, mainly due to growth in corporate profits rather than a big setback in the markets. The three main drivers for the next secular bull market would be in descending order: 1) The accelerating rate of technological innovation; 2) A bigger, more open global economy; 3) Somewhat lower energy prices thanks to widespread fracking, new nuclear at some stage, and more efficient renewables.