This Is Not Your Father’s Bear Market
"How odd it is that anyone should not see that all observation must be for or against some view if it is to be of any service!"
—Charles Darwin
One of the greatest scientists of all time, Charles Darwin, was a stickler for cataloging observation. But more than that, he put that observation into the service of a theory.
In some sense, what Darwin did with observation in service of a theory is what we try to do when applying our investment philosophy to the markets.
For more than three decades, my father, myself, and now my sons David and Michael, have been observing the market in service of our theory that investors are best served by being in the market when stocks are trending higher, and out of the market when stocks are trending lower.
If this seems simple, well, I agree. It’s simple in concept, but sometimes the simplest concepts are the truest.
Right now, my observation leads me to one very ominous conclusion: This is not your father’s bear market.
What we are witnessing is, in my opinion, historical. Stocks continue rolling over into the red, and week after week we are getting squeezed tighter and tighter by this bear. What makes this bear market different from the other four bear markets we’ve worked through during the last three decades? I’ll share more on this in a moment.
Now, some people are saying that Tuesday’s huge market move was a clear sign that the bear is going to be beaten back into hibernation. Well, to that I say, "nonsense!"
Despite the Federal Reserve’s announcement Tuesday that it would, in effect, ramp up loans of cash and securities to banks and dealers in an attempt to rescue the beleaguered mortgage-linked securities market, the pain in the credit market remains.
The Fed’s thought here is to let firms borrow up to $200 billion of Treasuries and pledge various flavors of mortgage-backed securities, including both agency and private-label instruments, as collateral. Well, this sounds like an attempt to juke the stats to me, but we’ll all soon see if it works as intended.
Certainly, Wall Street liked what it heard Tuesday, but I caution you to keep something in mind. Some of the biggest up days we’ve ever seen in the market have occurred during bear markets. Why does this happen? Well, for starters, there’s a lot of short covering in a bear market. That means traders who hold short positions are forced to cover those shorts when the market makes a sharp move higher. That short covering fuels more and more buying, and that buying leads to higher prices.
But aside from what happened Tuesday, keep in mind that the fundamentals driving this bear market are still in place. Indeed, this is not your father’s bear market, and here’s why.
First, Americans have been living way beyond their means for quite some time. If we go back 31 years to when my father first started what is now my Successful Investing advisory service, it was very common for the average family to save money every month. That average family had little credit card debt and, in many cases, there was a safe and secure pension waiting for dad when he reached retirement.
Today, the savings rate is below zero, credit card debt is at all-time highs and the burden of retirement is now squarely on the back of every individual. Very few people today have a safe and secure pension to look forward to, and many of us simple have not saved enough to satisfy our retirement needs.
Unfortunately, the problem of saving too little and running up high amounts of debt is being reflected in the political sphere. Our elected leaders have run federal budget deficits for years and they keep adding to the nation’s fiscal liabilities year after year.
Spending too much and running up too much debt are two key reasons why the value of the U.S. dollar vs. rival foreign currencies is at historic lows, while inflation is at 20-year highs. Add the credit bubble that created the real estate boom and bust, and you have the ingredients for a toxic cocktail of asset deflation.
Yes, this is not your father’s bear market. Fortunately, the bear market survival kit developed by my father, Dick Fabian, and refined during the years by myself and my team can help you get through this current bear market — despite its 21st century manifestation.
If you’d like to find out how to protect yourself from this wildly gyrating market, I invite you to check out my Successful Investing service. We’ve been helping investors just like you navigate treacherous market waters, and we’ve helped tens of thousands preserve their capital while growing their wealth.
Isn’t it time you approached this market with a game plan?
For more on how to get your plan in place, click here.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
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