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Are we in a new bear market? That’s a question I can’t answer definitively … yet.
But I can say the chances are growing every day. I base that view on the time-tested fundamental and technical indicators I’ve been studying and following for almost two decades. That’s why I’ve been incredibly active over the past few months, recommending my subscribers take action after action to lower their market exposure, raise cash, and hedge against (or profit from) downside market moves.
Meanwhile, IF we are in a new bear market, what can the last two major ones teach us about how to get through this possible one? Are there lessons from 2000-2002 and 2007-2009 that may apply today? Absolutely.
The first one: Use common sense. As those previous bear markets grinded on and on, I lost count of how many Wall Street shills came out and proclaimed a bottom. They told us over and over again that the worst part of the dot-com bust and the housing debacle was behind us.
But those predictions didn’t square with what we could see happening around us. We could all see dot-bomb companies going broke, and mortgage lenders going belly up. We could see tech stocks and housing stocks cratering, and we could see the empirical economic data getting worse.
This time around, nobody knows how long the crises in emerging markets like Brazil and China will last, or how severe the market downturn will get. But since it stems from a whopping seven years of 0% interest rates … up to $12 trillion in global QE … and the biggest global debt binge in history … a quick and painless minor correction seems unlikely. So does a fast rebound to new, all-time market highs.
Another important lesson? You can’t trust most of the mainstream conventional “wisdom” you’ll hear on CNBC or read in the Wall Street Journal in a bear market. It’s designed to keep you quiet and complacent, and it only (partially) works when markets are trending higher — not when they start falling off the table.
Remember all those dot-com analysts who were publicly touting Internet stocks, while privately calling them crap? The ratings agencies that kept companies like Enron, WorldCom, and Lehman Brothers relatively highly rated right up to the point where they went bust? How about the central bankers and Treasury Department officials who kept saying the housing market decline was “well-contained” even as it was dragging down the entire economy?
They either couldn’t or wouldn’t publicly fess up about how rotten conditions were. So your best bet is to follow independent, un-conflicted analysts who have no axe to grind and no need to publicly lie, stonewall, or obfuscate to keep you from taking protective, wealth-preserving or wealth-building actions.
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| The most important lesson from the last two great bear markets: Take action when conditions start to deteriorate! |
That brings me to the most important lesson from the last two great bear markets: You have to take action when conditions start to deteriorate!
Traditional brokers and fund managers want you to do nothing. They don’t make as much money if you yank your funds out, raise too much cash, or take other actions to protect against, or profit from, downside risk. So they’ll fight those actions tooth and nail, and tell you six ways ‘til Sunday to just sit tight and ride it out.
But that makes no sense to me. If you’re reasonably confident a bear market is unfolding, why wouldn’t you try to profit from it … just like we all try to profit during bull markets? And why wouldn’t you raise more cash when fundamentals and technicals start turning down? That way, you’ll have much more of that precious commodity to re-invest as close to the bottom as possible.
In sum, if your gut is telling you things are starting to come unglued .. if the data is confirming it regardless of what you hear on the tube or read on the Internet … and if a new bear market is at hand … don’t let inertia take over. Don’t listen to the claptrap from Wall Street. Seize the moment and take your financial future into your own hands.
That’s what you had to do when markets began rolling over in 2000. It’s what you had to do in 2007. And I believe it’s what you have to start doing now in 2015, even if a new bear market is not 100% confirmed yet.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 8 comments }
Hi Mike
Most know something investors among my friends have about five stocks or less in these times to trade. Stocks that you may have good research history on and then take a plunge and sell on the upside. It’s good money to be made in this kind of unpredictable choppy market.
There’s a Magnitude 10 Economic Earthquake on the horizon. You can feel the headwinds the only question is WHEN. The “Let the good times roll” economic cycle is close to collapse. The monetary system can no longer sustain the massive debt that has undermined the world’s currencies. One of the first domino’s to fall will be the derivatives bubble which will wipe out all available cash on deposit. That in turn will freeze the banking system’s around the world and that could/will lead to chaos.
Note: The housing collapse of 2008/9 almost brought down the entire system. That was a Magnitude 7 Economic Earthquake. This time … Magnitude 10
No problem until the Dollar crashes.Until then,it’s business as usual,with the Fed willing and able to print whatever is necessary,to keep the Titanic afloat.
Who was it that said something like: “The markets can stay irrational longer than you can stay solvent……” …?
I’ve been amazed at how long markets have been able to yawn and shrug off all the bad stuff…and keep going higher! ….and then maintain those ridiculously lofty levels!!….based purely on NOTHING but fake money being pumped into the system!!!
How long are they going to be able to keep this anvil levitated in mid-air??
Robert, I think “the markets” so-to-speak don’t have much of a choice. To think, and face, the soundness of the situation is unbearable. Plus, there’s nowhere else to go. Money mkts pay near 0, int. rates are so low going with bonds has too much of a risk if rates go up. There’s just not much else to look at out there. I agree with you — when you look at the world political sit and wars, and debt, and on and on — how does it keep going? Its nuts, but as long as “faith” keeps it afloat it’ll float….although wild fluctuations will be there also. Frankly, if we want to get down to Econ 101, why does the dollar stay alive after Nixon ended the gold standard. Nothing but faith, and not much other options.
Mike,
The fed will never raise your interest rates, you already pay 470 billion dollars now on your debt.
In the uk we have debt of 1.5 trillion pounds, like you it will never be paid off, the only investment is in solid oil, gold and silver.
I am worried about the cash that is sitting in a money market, and in my Trade King account. How safe is it in these accounts? Where would you put your cash?
Gloria, if your account is with a brokerage firm ask them if they have a FDIC account. I did ask mine that (Ameritrade). They were reluctant to talk about it, their reps were, I sensed, told to steer people into the MM account. But I nicely insisted, so they told me they did have an FDIC account. It paid less, but what’s the diff if its 0.0025 or 0.001? Its like nothing of nothing. You (and me) are more concerned in this market with return OF our money. You may have to ask kind of pointedly to get it. You also may do an online search “Who offers FDIC insured money mkt”…or some such wording.