WE ARE nearly halfway through the year and stockmarket investors are still searching for some positive returns. The FTSE All World index is down around 5% in dollar terms and of the major markets only Japan is ahead on the year.

Given that we have only recently seen a long downturn in share prices from 2000 to 2003, that raises the question of whether the rally that stretched from 2003 to 2007 was only a brief respite in a longer-term bear market. The twentieth century was marked by three very long periods when markets produced disappointing returns: 1901-1921, 1929-1948 and 1965-1982 (see chart).

Each of those three great bear markets saw enormous global problems—world wars, depressions and stagflation. By the end of each bear run, valuations were so depressed that the conditions were created for the great bull markets of the 1920s, 1950s and 1980s and 1990s.

As the bull mentality sets in, investors become overconfident and valuations are driven up to stratospheric levels. If history repeats itself, then we will be very lucky if the bear market really ended in 2003. The bottom may not be seen until next decade.

Psychology may explain these very long bull and bear runs but it is hard to see why they should have a predictable regularity. (We have surely moved beyond the theory that the economy is driven by the sunspot cycle.)

The most compelling argument why we have not seen the bottom for share prices is valuations. Share prices bottomed in 2003 when equities looked attractive relative to government bonds. But in absolute terms, they were not that cheap; we never reached the stage, as we did at other great market nadirs, of single digit price-earnings ratios or companies trading at discounts to asset value.

In his book “Anatomy of the Bear”, Russell Napier examines four great buying opportunities on Wall Street—1921, 1932, 1949 and 1982. (1932 was the bottom for the Dow but investors still suffered a rough time at the end of the 1930s and into the second world war. Outside the United States, investors who bought in 1928 suffered negative returns for the next 23 years, according to the London Business School.)

Leaving aside valuations, he cites a number of tactical signals that precede a bear-market bottom. Government bond markets recover in advance of equities, as do corporate bonds. Interest rates are cut; good economic news is ignored by the market; corporate profits keep falling after share prices rebound; and commodity prices tend to bottom when share prices do.

Of those signals, it is certainly the case that interest rates have been cut in America (if not in the euro-zone and not much, in Britain), and it could be argued that corporate bond markets have already seen their low. Corporate profits are indeed likely to decline. The economic news has been mixed (particularly the employment numbers), but one could cite some data from America (the latest purchasing managers' index, for example) has been encouraging. But neither government bond markets nor commodities can in any sense be described as being near a bottom.

In short, this does not look definitely like the kind of low from which very good long-term returns can be earned. That may be because the market has a lot further to fall; Morgan Stanley suggests that, if the superbear argument is correct, equities could drop a further 50%. But that will surely require some kind of negative economic news of the kind seen in the 20th century.

While there is a lot of talk about stagflation at the moment, we are not seeing (in developed markets at least) anything like the double-digit inflation and unemployment rates we saw in the 1970s. Perhaps the greatest threat to equity investors, therefore, is that central banks lose control of inflation.