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Why the U.S. Stock Market Is on the 'Edge of Tomorrow'

NEW YORK (TheStreet) -- Recently, we heard a market prognosticator declare that we could have a 30% decline in stock prices in the next 12 months. Presumably because investors fear starting over again, like many did at the market bottom in 2009, the talking head had ample emotion on which to make such a grandiose assertion.

This fear of starting over reminded me of the recent Tom Cruise movie, Edge of Tomorrow,  where Tom Cruise plays Lt. Col. Bill Cage, a soldier forced to live the same day again and again in efforts to develop answers on how to defeat a force which would end the world. Hence, living on the edge of tomorrow.

Why would a forecaster throw out a decline of that magnitude? What would it mean to us if this market pundit is correct?

First, pundits are going to get attention by being edgy. Second, this particular bull market run is over five years old and hasn't had a major correction since summer 2012. Third, many metrics show that we have reached stock prices in relation to earnings or dividends that have precluded market corrections and/or declines. It seems there’s a pervasive fear of resetting over and over again among investors.

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Unlike Cage, investors forget what it is they are trying to accomplish. Here is how Warren Buffett defines investing:

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. 

For fun, let’s look at the forecaster’s worst-case scenario and see what it would mean to the long-duration common stock owner who seeks greater purchasing power later.

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