Since March of 2001, the stock market has been and
continues to be in a secular bear market. Beginning in March 2009, stocks have
been in a cyclical bull market. This means our current stock market is in a
relatively short term bull rally within a much longer term secular bear market
The current rally will serve to separate the second phase of the secular bear
from the third and potentially most damaging leg down in the ongoing bear
Now that doesn't mean the rally since March 2009 is
finished. I doubt it is.
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 itís going to do that is simply because we
donít have a fundamental driver to power a long term bull market in place. 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, any entry no matter how poorly
timed, would eventually end up being a winning trade. (Itís the strategy Buffet
used to become a billionaire, by the way).
Simply said, only traders can lose money in a secular
bull market. The only way to lose money in this type of market is to buy high
and sell low. And, a buy and hold strategy is the only 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 secular bull. We havenít
discovered the next ďbig thingĒ yet. The new technology that will change the
world again, drive massive economic growth and create the millions and millions
of new jobs the world needs so desperately.
Now all we are getting are phony cyclical bull markets
built on money printing. Those are 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.
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 earlier 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 1800's) we are not going to have
another secular bull market for stocks.
There is a sector however that does flourish 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 the
fundamental driver is taken away. That means the money printing presses have to
be turned off. Second, any entry will ultimately turn out to be a winning
position as long as one is willing to hold on.
Investors would do well to remember that the bull will
eventually correct any timing mistakes.
That being said it is possible to maximize gains and
minimize draw downs if one can recognize where gold is in its wave cycle at
present. As all of the gains occur during a C-wave advance one wants to be fully
invested during this period.
Probably more 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 appears to be entering a second leg
up in the ongoing C-wave. The trick will be to sell at the top when things look
the brightest and then re-invest at the bottom of the D-waveÖ when things look
I will be monitoring the advance closely over the next
couple of months so as to get subscribers out prior to the onset of the next
The Smart Money Tracker
Gary Savage is currently retired and lives in Las Vegas. He
is the author of the Smart Money Tracker, a financial blog with
special emphasis on the gold secular bull market.