In a super-sized Bear Market, a Bull Market mindset is Insane

Transcription

1 August 9, 2014 In a super-sized Bear Market, a Bull Market mindset is Insane After 14 years of Supercycle Bear Market, the vast majority of investors persist in a Bull Market Mindset. Despite foreshadowing collapses in 2000 and 2008, the investment industry too remains in denial, knowing all too well that Bear Markets kill order flow and brokerage profits, and 40% of assets under management walk out the door. In its own selfinterest, or perhaps out of naïve set thinking, the industry continues reassure investors with a Bull Market Mindset: invest for the long-run, backed by the Fed s Put. The purpose of a Bear Market is Capital Destruction Less than 3% of investors will prosper Just as a Bull Market creates capital, the Bear Market destroys wealth. A Supercycle Bear Market requires at least a 90% plunge in market wealth, much of it in a flash crash, to vanish trillions of dollars, & brutally contract the money supply, resulting in crippling repercussions across the globe. When trillions of dollars vanish overnight, less than 3% of investors will prosper. Will you be one of them? Your wealth, your security and your lifestyle are all in grave peril. Unless have a revelation, like St. Paul on the way to Damascus, you will soon find yourself downsizing, time and again, to join of the new, downwardly-mobile middle class. Either reverse course to align yourself & your investments to go with the flow of the Bear Market now, or you are destined for catastrophic losses beyond imagination. Each time the market plummets the stakes get higher A perpetual Bull Market, like a perpetual Boom, is a tall tale Booms are sequenced by proportional Busts Page 1 of 8

2 Einstein on Insanity Each time the market plummets, the stakes get higher, as magnitude gears-up via power laws in semi-log (2x) steps. Up to now, Buy & Hold for the long-term has been reinforced by giddy Bear Market Rallies, high on the Fed s toxic punch. As this Market goes in for KILL in Wave (A) to the trough, neither the Fed, nor the long-term can save you from ruinous losses. As Einstein proposed: insanity is continuing to do the same things, while expecting a different outcome. To persist in a Bull Market mindset after 14 years of a Colossal Bear Market, goes beyond insanity. The entirety of the Fed s stimulus must vanish Precisely because of such unprecedented monetary experiments, a counter-force of greater proportions has been augmenting since the time of Alan Greenspan. A culminating Bust, beyond imagination, will usher in severe Deflationary Depression, to vanish the entirety of Fed s artificial stimulus. The Bull Market ended in 2000 The Bull Market ended 2000; since then, the Bear Market has been growing in magnitude in the A-B-C-D Diag II structure you see below. The E wave in process, ends in the wave (A) trough. The same Bullish Diag II structure, which heralded the long Bull Market ended 2000, has reversed into its reciprocal Diag II, to presage a much longer, Bearish trajectory. Bulls & Bears - how to tell the difference Convention states that a correction is a 10% decline, while a Bear Market exceeds a 20% plunge. Obviously these are myopic perceptions. All of nature is proportional. The Market typically pulsates up in three steps, then backtracks at least 2/3 of the way. Wave 4 corrects wave 3. Supercycle Wave (IV) is on the same scale and magnitude as Supercycle Wave (II) spanning 1906 to 1932, and is intended to correct Supercycle (III) spanning 1932 & Page 2 of 8

3 Figure #1 The Dow 1982 to present Figure #2 The Big Picture Dow 1900 to present Page 3 of 8

4 Since 2000 it s all one Supercycle Bear Of course, ten and 20% are artificial definitions. According to this demarcation, waves A & C of the Diag II, corresponding with the 2003 & 2009 troughs, were respectively Bear Markets, while the waves B & D peaks in 2007 and 2014, were Bull Markets. (See Figures 1 & 2 above, to find your bearings.) These misnomers are completely out of context. It s all been one colossal Bear Market since 1982, gearing-up magnitude for the Kill. Most pundits have been fixated on the previous scale, never stepping back enough to take in the Big Picture perspective. The larger Elliott Context Elliott approaches such Bear Markets in relative terms within a larger context. According to New Wave Elliott, the Supercycle Bull Market ended in 2000, and everything since has been part of a huge, Supercycle Bear Market. A Diag II, denotes the beginning of a long, bearish trajectory to the trough, just as its reciprocal, Bullish Diag II heralded the long Bull Market ended Once you find your way to the correct magnitude, a historical perspective gleaned from Reinhardt and Rogoff s This Time is Different and Russell Napier s Anatomy of the Bear will set you straight, to keep you from succumbing to irrational foolishness, intended to part you from your money. No long-term Safe Havens - only short-term parking You cannot you possibly preserve your capital via any buy & hold strategy. In this Bear Market the long-term is the (A)-wave trough, in the vicinity of Dow 570. In the plunge ahead all asset classes, with the exception of short sales or inverse ETFs and the $VIX will plummet. In the interim, there will be no long-term safe havens, only short-term parking for your capital. First of all, when all stocks, and eventually asset classes jump off a cliff, only short sales and inverse ETFs are left. To maneuver market turbulence optimally these must be judiciously swing traded, rather than held in the Bull Market programming. While Page 4 of 8

5 resource commodities and emerging markets will bounce back temporarily, these are short-term diversionary moves, within the larger 90% plummet. In the diagram below, you see Supercycle Wave (A), in detail, showing a relative timeline highlighting swing trade oppotunites by asset class, in short Emerging Markets and T-bonds, later reversing to long, & long Gold, relative US stocks. Although all asset classes will eventually plunge, in the meantime, you can ride the short-term rallies in the long ETFs, and Swing Trade the longer plunges in inverse ETFs. All else, other than hoarding cash, is utterly insane. Figure #3 Wave (A) of a Supercycle (IV) (A)-(B)-(C) Bear Market First things first - liquidate long all stocks & Bonds To conceive that you could buy enough puts to offset the plunge in a long portfolio is precisely the opposite of the most practical, winning approach. Rather than buying individual puts or the $VIX, volatility index, first things first, schedule the liquidation of all long stocks. Time the liquidation with our free Market-Timing signals on Stockcharts 80% of all stocks are synched with the larger indices Page 5 of 8

6 Time the liquidation of your entire long portfolio with our signals, found in free public Stockcharts for the Dow & S&P, by clicking on the link and saving it to your favorites. 80% of all stocks are synched with these larger indices. Only after you are completely out of the market, you can come back and trade half or one-third of your liquid net worth, according to Exceptional Bear s Market timing signals. This is no short-term economic malady, but a chronic, terminal illness T-Bonds are Swing-Trading Assets, for Capital gains, rather than income High-Yield equals High Risk Forget about the need for earn income for living expenses, so long as you preserve capital, deflation will increase your purchasing power far beyond what you could possibly earn with dividends, without the risk of total loss. Bonds should be thought of swing-tradable assets just like stocks, to capture capital gains, rather than interest. Buy when they are under-valued sell when they are over-valued. Reaching for yield in risky Junk sets you up for capital losses, far in excess of the incremental yield. High-Yield Bonds are a high-risk/low return gamble. This is no short-term economic malady, Supercycle (IV) is a chronic, terminal illness. In the larger scheme of things, Wave 2 corrects wave 1; & wave 4 corrects wave 3. Bear Markets are waves 2 & 4 corrections proportional to the previous Wave 1 or 3 impulse being corrected. As you see in figure # 2, Supercycle (IV) corrects the entire Supercycle (III), from The minimum retracement is to the 1979 Cycle Wave IV trough, to the vicinity of Dow 570. As you see below in Cycle Wave IV ended 1977, the A wave troughed the entire Cycle Bear Market in The current Supercycle (IV) should follow nearly the same trajectory, with an echoing Diag II fractal next, similar to mid-1973 to mid-1974 below in figure #4 below. Page 6 of 8

7 Figure #4 Cycle Wave IV a 50% scale model Figure #5 Long, T-bond ETF Page 7 of 8

8 80/20 Investing In the Bear Market plunge, when virtually all longs are wrong, it s better to own the worst Bearish ETF, than any stock or aggregation of long stocks. This eliminates over 90% of all investment possibilities. Page 8 of 8