Is it a bull market? Bet on a bear market instead.
Well, they don鈥檛 make it easy for you.
Yesterday, the Dow rose 225 points. Enough to keep people guessing. Enough to keep people in the market. Enough to give the 鈥榬ecovery鈥� spotters something to look at and investors something to hope for.
Is the market really headed down鈥r not?
Most likely, yes鈥t鈥檚 a real bear market. And it will probably continue for years.
And even if it isn鈥檛, it鈥檚 probably best to think it is.
Why?
Because most stocks have still not hit their ultimate lows. If you can鈥檛 see the bear market鈥檚 final lows in your rear view mirror, they must be ahead of you. Remember, the broad pattern of the stock market is from an epic high to an epic low鈥ith years of up and down movement in between.
When you buy stocks in the middle of the market鈥檚 pattern鈥hen they鈥檙e not cheap鈥ou鈥檙e completely at the market鈥檚 mercy. If it goes up, you do all right. If it goes down, you lose money.
Since we don鈥檛 know what direction the market is going, we鈥檒l just wait until stocks are cheap. Then, we won鈥檛 have to worry about which direction the market takes.
Besides, if we don鈥檛 know which direction the market is going, we have to assume that there are even odds it will go down or up. Even odds aren鈥檛 good enough for us. We don鈥檛 want a level playing field. We want a playing field tipped in our direction. We don鈥檛 want an honest card game; we want a deck we stacked ourselves.
Which would you prefer, dear reader: to make a dollar鈥r not lose one? If the odds are even, it assumes one is as a good as the other. But they鈥檙e not. If you hold onto a dollar, you keep 100% of it. If you make a dollar, on the other hand, you pay taxes on it. After tax, it could end up being worth only 50 cents. That means you鈥檇 have to believe a bull market was twice as likely as a bear market before you should invest.
Do you think that? We don鈥檛. We think this market is more likely to go down than up. By our reckoning, the bear market began in January 2000. The feds fought it with every weapon in their arsenal. Monetary policy. Fiscal policy. Booby traps. Propaganda. Scorched earth. Everything. And the market responded鈥or a while. Greenspan鈥檚 鈥榚mergency鈥� low interest rates caused a huge bubble. Stocks rebounded.
And then the bubble blew up.
The Dow fell below 7,000 in March 2009. This time, the feds brought out another, even more powerful weapon. They blasted away with 鈥渜uantitative easing鈥� 鈥� adding $1.2 trillion directly to the Fed鈥檚 reserves. And once again, the market bounced鈥ntil about a year later, when the quantitative easing program came to an end.
You can fight a downturn. You can hold off a bear market 鈥� for a while. You can distort a correction 鈥� making it much more twisted and nasty. But you can鈥檛 stop it. One way or another, mistakes will have to be reckoned with. Markets will eventually discover what things are really worth. And in a real downturn, they鈥檒l always discover that they are worth less than people thought.
History shows that after a peak is reached, stock prices will keep falling until they become bargains again. So, if you knew that a stock would eventually sell for less, why buy now? Why not wait? What鈥檚 the hurry?
The reason given for yesterday鈥檚 big bounce was a pleasant report from the housing market. More houses are being sold, said the news.
Does that get you excited, dear reader? It doesn鈥檛 do anything for us.
Another report tells us that inventories of unsold houses are still building up.
Meanwhile, The New York Times reports that there is a crisis brewing in student loans. We didn鈥檛 have to read the article. Students get out of school. They can鈥檛 find a job. How do you expect them to pay back their loans?
A report in the local paper tells us that more students than ever are enrolling in community college.
Overall, the economic reports are broadly encouraging鈥ut still consistent with our Great Correction hypothesis. This is NOT a normal recovery. Nor is it the end of the world.
Our strategy is to wait 鈥檛il the end of the world comes; then, we鈥檒l buy stocks.
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