Thursday, February 25, 2010


The reason I don't want to mess with the stock market at this time is because it is in a secular bear market. Any rallies are always going to eventually be doomed to failure in this environment. Now that doesn't mean the cyclical bull is finished. I doubt it is. What it does mean is that one can't make a timing mistake and expect to be rescued by the secular trend.

For instance; from 1982 till 2000 the stock market was in a secular bull market. The fundamental driver for that bull was the personal computer and the internet. Those were world changing new technologies. Millions and millions of jobs were created during this period.

There were certainly nasty corrections during the secular bull, 1987 was an example. But the secular trend was up. So as long as one was willing to hold on to ones position any entry would eventually end up being a winning trade. Like I've said before the only way to lose money in a secular bull market is to buy high and sell low. (I seem to be having trouble getting that point across lately). In a secular bull market there's nothing wrong with buying high as long as you sell higher. That means sometimes you have to be patient and let your positions work. Sometimes you have to endure drawdowns.

Ultimately though as long as you don't sell for a loss then every position will end up a winner (I'm talking index ETF's not individual companies)

The problem with the stock market since 2000 is there is no longer a fundamental driver to produce a secular bull. Now all we are getting are phoney bull markets built on money printing. Those are not the kind of fundamentals that can support a sustainable bull market. So what happens? Eventually the false fundamentals fail and the market collapses.

The Fed is now at it again trying to build another bull market on a fundamental base of nothing more than trillions of dollars of liquidity. It didn't succeed when Greenspan tried it and it's not going to succeed for Bernanke.

Until we get the next fundamental driver (personal computer, internet 1982-2000: electronics 45-66: automobile 20-29: trains in the late 1800's) we are not going to have another secular bull market for stocks.

There is a secular bull market that does florish on a fundamental base of money printing though. That secular bull would be commodities in general and precious metals specifically.

Gold is in a secular bull market. That means several things. First off we can expect this bull to continue until the fundamental driver is taken away. That means the presses have to be turned off. Second, any entry will ultimately turn out to be a winning position as long as one is willing to hold on till the bull corrects any timing mistakes.

The one area where investors can rely on the buy and hold strategy at this time is in the precious metals markets and will be for quite some time yet.