The Bear Market Is Here
Written 2-12-08
Our subscribers are not, typically, nervous Nellies or Nelsons. As a rule, in fact, we find our subscribers to be rational, sane, and pretty down to earth folks, making them the antithesis of Wall Street and the financial media.
Given that, we are joining our brethren in welcoming the Great 2008 Bear Market. Whatever the media chooses to believe and whichever academic pinhead they choose to cite, we see it and know it for what it is.
Investing philosophies and decisions need to adjust immediately to the reality that Wall Street, institutional investors, media know nothings and the entire right coast of the USA are launching themselves into a full fledged panic. Economic fundamentals, reasoned analysis and sensible decision making are no longer important – what is important today is panic, terror and the related opportunities for retail investors.
Accordingly, our subscribers should be looking for bargains and fire sales. The
banking industry is in complete rout – short selling should be on everyone’s
mind as a profit maker. Manufacturing not supported by extensive export demand
will tank this summer as consumer confidence gradually slips away. Retail sales
will hold steady until the goofy “stimulus” checks are wasted on geegaws or
gadgets (not to mention used to pay down credit cards) then will drop like a
bomb on Baghdad. Tech stocks, international issues, and all forms of equities
are about to take a massive beating while commodity inflation soars.
Mutual funds (we hate talking about mutual funds) will slink downward as the
overall economy contracts and so-called safe investments (Treasuries, top rated
corporate bonds and all forms of muni’s) will command premiums as the summer and
fall move in. For 401k and other retirement programs, wholesale moves from
common stocks to bond funds is an appropriate strategy in a defensive alignment.
Volatility in commodities, particularly oil and foodstuffs, will be the watchword of this Bear while the twin towers of toxic trash – subprime mortgages and consumer credit cards – will inflame madness across all the economy. If the Fed continues to ignore the world and let inflation run amok, as it has for the last half year, look for all major commodity groups to soar as major investors move their money into real metal, ore and crops, out of the garbage paper they’ve been gobbling up for three years.
UEA looks to the subprime housing mess as an absolute cauldron, sucking down financial powerhouses like Lehman and Merrill Lynch while creating chaos on bank balance sheets across the country. Expect to see the number of banks failing to skyrocket while even the good ones suffer battering of their stock prices.
Consumer credit defaults will exacerbate the problem, punishing major players like Citibank and other major credit card parasites. Before this Bear goes hibernating, expect to see significant, fundamental changes in the landscape of the American financial landscape.
For our subscribers, we are not suggesting anyone go on a buying binge – yet. Patience is the key to success in this Year of the Bear. Watch your opportunities and hoard your cash; when the market bottoms out in the fourth quarter and early 2009, be prepared to buy up the solid companies run down by the panic and watch them recover faster than the market as a whole. The huge mistake most of us will make is to miss the first third of the recovery – historically, almost 70% of the gains come in that time.
