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.
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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.
|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,
The investment strategy and opinions expressed in this article are those of the author's and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.