Secular Stock Bear vs. Secular Gold Bull
Source: Toby Connor, Gold Scents (3/16/10)
Since March 2000, the stock market has been and continues to be in a secular bear market. Beginning in March 2009, the stock market entered another cyclical bull market. . .the current market is in a relatively short-term bull rally.
This means our current stock market is in a relatively short term bull rally within a much longer term secular bear market decline. A really big bear market rally, so to speak.
This cyclical bull will serve to separate the second phase of the secular bear from the third and potentially most damaging leg down in the ongoing long-term bear market.
Now that doesn't mean the rally since March 2009 is finished. Obviously it isn't, as most indexes have recently moved to new highs.
What it does mean is that one can't make a timing mistake and expect to be rescued by the secular trend.
At some point this bull is going to expire and we are going to head back down and break the SP500 lows at 666, either nominally or on an inflation-adjusted basis. I suspect it will be both.
The reason it's going to do that is simply because we don't have a fundamental driver in place to power a long-term bull market and the Fed's attempts to defeat the bear are actually just magnifying and prolonging the structural problems.
For instance, from 1982 to 2000, the stock market was in a secular bull market. The fundamental driver for that bull was the personal computer and the internet. Those were world changing new technologies. Millions and millions of jobs were created during this period.
There were certainly nasty corrections during the secular bull, for which 1987 is an example. But the secular trend was up.
So as long as one was willing to hold onto positions, anyone buying the S&P no matter how poorly timed, would eventually end up with a winning trade.
Simply said, only traders can lose in a secular bull market. Buying high and selling for a loss is the only strategy that can produce negative returns in a long-term bull.
On the other hand a buy-and-hold strategy is a sure fire money maker in a long-term bull.
The problem with the stock market since 2000 is that there is no longer a fundamental driver to produce a long-term bull market. We haven't discovered the next "big thing" yet.Until the next world-changing technology is developed and comes online all we are going to get are phony cyclical bull markets built on a fundamental base of money printing. And that is not the kind of fundamentals that can support a sustainable long-term bull market.
So what happens? Well, eventually the false fundamentals fail and the market collapses. And all the jobs produced during the false economic expansion evaporate. A recent example is all the construction and finance jobs that disappeared as the real estate and credit bubbles burst.
The Fed is now at it again trying to build another bull market on a fundamental base of nothing more than trillions of dollars of liquidity (printing money out of thin air). It didn't succeed when Greenspan tried it in the last decade, and it's not going to succeed for Bernanke in this decade.
Until we get the next fundamental driver (i.e. personal computers & internet 1982-2000, electronics 1945-66, automobile and mass production 1920-29, trains in the late 1800s) we are not going to see another secular bull market for stocks.
There is a sector however that flourishes on a fundamental base of money printing. That sector is the commodity sector, in general, and the precious metals, specifically.
Gold is in a secular long-term bull market. This means several things.
First off, we can expect this bull to continue until 1.) The fundamental driver is taken away. This means the printing presses have to be turned off and 2.) We see a final blow off top as the public panics into what they perceive as a "sure" thing. Until the secular gold bull tops any entry will ultimately turn out to be a winning position no matter how poorly timed as long as one is willing to hold on. Investors would do well to remember that the secular bull will eventually correct any timing mistakes.
A buy-and- hold strategy is the only sure fire way to make money in a long-term bull. It's not the only way but it is the one that is virtually guaranteed to return tremendous profits.
That being said, it is possible to maximize gains and minimize draw downs if one can recognize where gold is in its wave cycle. As all of the gains occur during a C-wave advance one wants to be fully invested during this period.
Just as importantly one needs to recognize when the C-wave is coming to an end and exit positions before gold enters the inevitable D-wave correction.
At the moment gold may or may not be entering a second leg up in the ongoing C-wave that began in April of last year.
I will be monitoring the gold market closely over the next few weeks for the confirmations that should determine if gold is going to deliver one more leg up. If a second leg does develop, we then need to be on the lookout for the signs that a final top is approaching and exit positions ahead of the D-wave correction.
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