Listen To Your Wife: We’re In A BEAR Market

1. Use Your Common Sense

My wife doesn’t have the same knowledge as I do regarding the ups, downs and influences of the global marketplace. Her mind is occupied by other things. I casually asked her if I should invest in stocks and waited for her reaction. It was something like, “…Are you nuts?…honey, the economy is horrible now and still getting worse, all the hotels are much less busy than they’re supposed to be..” (We live in Sanya, China, a resort beach destination) She waxed on with a couple more examples from her personal point of view which hit the nail on the head as clearly as I feel too many people need to be reminded of. We’re in a BEAR market. Do you truly understand this?

Along with several other articles I’ve recently read, we need to remember that Cramer is sort of a fun show in bull marketsand take his entertainment with a grain of salt because his calls in a bear market are a mixed bag at best; nonetheless respect his knowledge and insights as part of your own market assessments.

As my darling wife fundamentally understands, we are in a BEAR market and buy calls are scary in a bear market. A bear market is when you can see the 200 day MA 1) above prices and 2) slanted down to the right!!! And more so, the same is true for the 50 day MA!!

2) Do You Truly Understand?

Rallies in this market now are called “bear market rallies” They are NOT, boys and girls, market recoveries or reversals. Do you clearly and truly understand that? Do you expect any postive flowing level of good news to start being announced in the next couple of months?…didn’t think so. Another thing; chart analysis is a fabulous needed tool but charts do not drive markets. Fundamentals do. So if and when the fundamental P/E of the S&P500 starts to settle down, when unemployment starts improving, when the Baltic Dry Shipping Index goes way back up, when it appears we are safely past the imminent deflation of the dollar, when… (feel free to add your own positive economic indicators), AND when the market starts marching confidently back above its 50, 100 and 200day MA, then you can make intelligent, wise investment and trading decisions based on our being in a bull market.

Keep It Simple

I was recently reading the saga of Peter Schiff. I’ve never met the man and I would be happy to shake his hand with professional respect. However, he made a very bad call last year for his clients. His analysis somehow made him believe AT THAT TIME that the foreign markets would be decoupled from a U.S. market decline. He was very wrong on that ca;;, which does not mean anything more than that was a bad call amongst the mix of other calls his firm makes including good ones, neutral ones and bad ones. My point is however, I think if he had asked my wife he would have somehow gotten a better answer. One of my favorite authors, Malcolm Gladwell, in his best selling books, Blink and The Tipping Point, points out how too much information can blind us and impair our judgement. He talks about being able to “thinslice”; being able to gather and judge accurately from the essential information and let your intuitive judgement make the final call. I think that could be what happened to Mr. Schiff. My friends, clients and I live in China, giving us all a decidely international view of life and business and none of us would have thought for a minute that the foreign market moves were decoupled from the U.S. market. Its rather obvious they are quite in synch and have been for sometime. But I “thinksliced” this issue, basing my answer on limited but essential information and common sense.

Long Term Allocation

If you do have the funds to place long into bargain-priced blue chips and other great value stocks now, good for you. It is not a horrible idea. For example, you have $10,000, you really don’t want to stay out of the market in cash and you want to trade trends. Then put $ 3-4000 in 3-4 of those bargain value stocks and forget about them. Then use the other $6000 to trade the trends in other more aggressive positions in ETFs, stocks, gold, oil, currencies. Even if the market tanks another 30% in the next 3-6 months, which it could, your bargain blue chips will probably only go down half that percentage, and if they pay nice dividends along the way, you’ve not suffered much. And yes, even in bear markets, some will even go up. Adding to those positions on the way down is not a bad idea either. Meanwhile, if your mind is sharp, analytical, confident and NOT emotional, you could be making nice profits in trading strategies with short/long ETF’s and puts/calls continuing to selectively ride the bear market up and down.

The Final Thought

Finally, you are in the business of growing your assets. Your cash is your asset. Every trade is a fresh trade on the table that has nothing to do with a previous position. Where, right now, do I want to put this hard-earned dollar of mine because I believe it will be invested wisely and grow in a position, whether that position lasts 1 day, 1 week, 1 month, 1 year or 10 years?

Do you truly understand? Thanks honey.

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Comment by Filip Coulier

2009-02-03 09:30:36

Your wife is a lot smarter than you! (-:

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