Wednesday, December 3, 2008

Japan - when will the new secular bull arrive?

Japan has been mired in a secular bear market since the beginning of 1990, or for the last 19 years. Their market proves, once and for all, that buy and hold forever is stupid unless you are alive at the right time in history. If you were 40 in 1990 in Japan and started investing in domestic stocks with the buy and hold mentality, you would be 59 now with retirement nowhere in sight. This is what is in store for U.S. investors, and it started in the year 2000.

Buy and hold will not work in the U.S. for the next decade or two. It is a bad strategy and has been for the past 10 years. Did MSNBC, CNBC, Cramer, Ben Stein, Suze Orman, or any of the other people that are supposed to know what they are talking about warn you of this? Or do they all keep saying the same exact thing - buy stocks! When the market is high, buy stocks! When the market is low, buy stocks! When the market is in between, buy stocks!

Excuse my French, but screw that. Buy and hold was for the 1982-2000 secular bull market. Gold and gold stocks and trading in and out of other stocks is for the secular bear market in general stocks that began in 2000 and won't end before 2012. Let's hope Japan is not our road map or the bear market will still be in force in 2018!

Japan still hasn't reached bottom, though they are due for a bear market bounce just like us. Sometimes looking at long term charts can give one a perspective that the daily squiggles just can't. Here is a monthly chart of the Nikkei stock average of Japan over the past 29 years:

Momentum (a la the RSI and MACD) in Japanese stocks is confirming the downward trend. We'll need a divergence on this monthly Nikkei chart to suggest a significant change in direction is coming. Setting up a divergence on a monthly chart will take a year or more! Translation: despite a 19 year bear market, Japan has more pain to come. Think it can't happen here in the U.S.? Uhhhhh, think again.

The bottom line big picture is that U.S. Stocks will be dead for a while and there is nothing wrong with staying in cash and gold for the next few years and avoiding this mess altogether. Alternatively, you can switch to the one true secular bull market that is getting ready to launch: gold stocks. As another alternative, you can learn to trade the shorter term swings and profit from the bear market.

The one thing you absolutely do NOT want to do is follow the advice everyone gives without hesitating: buy and hold index funds/general stocks forever. This is terrible advice for the next few years and will ensure huge portfolio losses.

Wikinvest Wire