Study this chart. What you’re looking at is a set of logistic growth curves for virtually everything. The error of extrapolating past growth rates without considering market saturation is as common as the error of extrapolating past returns without considering valuation.
2/ ... this is what the decline in growth rates looks like as product adoption leads to market saturation. Exactly the same profile as we saw for market leaders in the tech bubble. Yet investors will be just as surprised by “growth disappointments” as they were last time. 
3/ … and on the subject of extrapolating past returns without considering valuation...
4/ … it's exactly when passive investment returns look most glorious in hindsight that they become most dismal going forward. Short-term oversold features may be due a clearing rally, but we're nowhere near valuations that investors should associate w/ strong long-term returns.
5/ … and here's a general guide to the levels of the S&P 500 that would currently be associated with various levels of expected long-term returns.
6/ … yet if high valuation was enough to stop speculation, we could never reach obscene valuations like 1929, 2000 and today. What drives returns over shorter segments of the cycle is the psychology of investors toward speculation or risk-aversion, which we read from internals.
7/ … in fact, monetary easing is only reliably effective in supporting stocks when investors are already inclined to speculate (which is best read directly from market action). Recall that the Fed eased persistently through the 2000-2002 and 2007-2009 collapses to no avail.
8/ … Once investors are solidly inclined toward risk-aversion (which we read from internals), safe low-interest liquidity becomes a *desirable* asset rather than an "inferior" one, so creating more of the stuff doesn't reliably provoke speculation.
9/ … as a side note, both valuations and internals navigated the recent mkt cycle beautifully. My own error was responding bearishly to "overvalued, overbought, overbullish" warning signs that were reliable across history. Once rates went to zero, those "limits" had no effect.
10/ … the nutshell is this. We have to allow for the market to lose about two-thirds of its value over the completion of this cycle. Monetary easing will not reliably support stocks when investors are risk-averse. Best to directly monitor valuations and internals in the interim.
11/ … the benefit of directly monitoring valuations and internals is that we don't have to rely on "forecasts" at all. Rather, we just have to respond to changes in market conditions as they themselves change. Like sailing. Just understand where we are in the cycle.
12/ … just a little more on internals. The key idea is that when investors are inclined to speculate, they tend to be indiscriminate about it. Once market internals lose that "uniformity," overvaluation suddenly becomes dangerous and a potential trap-door opens under the market.
13/ … a nicely written article by @JoeCiolli at @businessinsider (prime). My hope is that the preceding charts and data offer some indication of why I don't see this as hyperbole.
businessinsider.com/next-stock-mar…
businessinsider.com/next-stock-mar…
14/ … and knowing me, you probably won't be surprised that there's a companion chart for that point too.
