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Anatomy of the Bear: Lessons from Wall Street's four great bottoms by Russell Napier

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Prologue, 2007

In the first edition of this book there was a forecast that a rise in inflation would be the catalyst to produce a decline in US equity valuations that would not end until around 2014. The bad news for the forecast is that the S&P Composite Index has risen significantly since publication, but the good news is that the nature of the inflationary risk is today much more apparent.

One of the basic findings of the research in this book is that equity valuations are mean-reverting. Another key finding is that disturbances to the general price level are the key catalyst to instigate such reversion. Based on previous durations and magnitudes of bear markets, the forecast in the first edition was that the cyclically adjusted PE would ...

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