Bear Market to Resume Shortly

If you have read my previous posts, you will know that I believe we are in the midst of a secular bear market. The last secular bear market occurred in the late 1960s and lasted until 1982. Secular bear markets are like secular bull markets, they last a long time. Typically a bear market does not end until stock valuations as measured by P/E ratios drop below what I call the normal range. The average range for P/E ratios historically runs between about 14 and 17. We are currently at about 19.3, which is still a little high. The current bear market will not be finished until we see P/E ratios down in the single digit range. To get there, one of two things must happen. Either the prices of stocks must drop (best bet) or earnings must go through the roof (slim chance).

An article yesterday on Bloomberg Here announced that the housing bubble has burst. Now I don't know if that is an accurate assessment or not, but like I have said before, once these things start appearing in the mainstream press, they tend to become self-fulfilling. I have been predicting this for some period of time simply because of loose credit, low rates, and massive money creation.

Now back to the bear market. As you know, the market does not move in a straight line. Instead it tends to move in waves, up and down. Lately we have been in an up wave. In fact a recent article by Mike Burk here states that all the major indexes closed within 1% of multiyear highs. He claims that this is an indication of a bull market. I disagree. I believe that what we have seen the past several months has been nothing more than a bear market rally. Otherwise known as a bear trap. Don't get caught.

If the housing market takes it in the shorts as I believe it will, then we can look forward to a resumption of the bear market. I certainly hope you have positioned yourself to take advantage of this market environment.

Our Risk Adjusted Asset Management System (RAAMS) indicates that we are in a period of high market risk and therefore we are invested in defensive assets and funds to take advantage of any adverse move. Does it work? Well, since 2000 our portfolio has increased 162%. How has your investments done the last five years?

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