Friday, March 20, 2009
Always keeping an eye on the big picture
The bear market in general equities is not close to being over. Not by a long shot. I promise. The arguments being bandied about by rational speculators and investors relate to whether or not we have seen an intermediate-term bottom in stocks. Anyone telling you that this is THE bottom in stocks for the long-term is dead wrong and will lead you down the path to financial ruin. So, speculators and short-term traders need to struggle with the tape on a daily basis to determine where we are headed for the next day, week or month.
Longer-term and novice investors, on the other hand, just need to get their money out of the market and into something safe like gold or a basket of senior producing gold mining stocks (like the gold miner ETF GDX, for example). A bear market rally is to be sold into. Those still clinging to the notion that general stocks are coming back because Cramer thinks they are and "gosh darnit, they have to or I'll never be able to retire" are in for a very rude awakening.
The last so called Great Depression had fewer economic destructive forces at work than we have today on a relative scale basis. So why is it going to be different this time? Hope is fine and good, but it shouldn't guide investment decisions.
The 30 year chart of the S&P 500 below, in my opinion, tells the entire story and almost guarantees a move down to the S&P 400 level. And that's only the bottom if things go well. Are people really prepared to take another 50% haircut in their general equity holdings from today's levels?
So, I speculate with funds I can afford to lose (not that I intend to lose...), but I have ZERO long-term holdings in general stocks and general stock market indices because I know what's coming next. Rather than fear it, since I know I cannot control it, I intend to profit from it and I intend to preserve capital by holding physical gold (the ultimate form of cash). Because when the dust settles, though it is likely to get ugly before that happens, there will be amazing long-term opportunities in general stocks and real estate for those so inclined. But you'll need to have capital left over when this bear market is done to take advantage of those opportunities.