Now if you know me, and read here, I have been a bear too long here, and so this is kinda like the boy who cries wolf enough is eventually right.
In post Long Term Investing Signal I pointed out an independent metric you can use to detect market direction changes. This indicator has been pretty reliable since the 1970's if not before.
The cross happened in October, but wasn't convincingly crossed until the close of the market today.
This bear market is much different than 2000 or 2008, and therefore is much more unpredictable.
In 2000 the USA hyped up the market on tech, and the bubble popped.
The response was the Fed inflated housing through low interest rates and failure of Bush administration to do any regulation on fraud mortgages. ( See Blame Game ).
That time the world took a heavy dive, but the cause-effect was targeted. The housing popped, so cover-up and fix the mortgage derivatives. Part of the solution was to reduce interest rates that have been falling since 1982 even further.
The Fed brought rates to historic lows, and recently increased rates by 0.25 percentage points. The 'easy' money injection method has just hit the end of the road.
China committed financial fraud dwarfing all of humanity's history. Recently they started to unravel and all the economic ties are affecting, notably resources.
As economic strains increase, countries focus EXTERIOR rather than interior. The result is now Saudi Arabia vs Iran, North Korea vs the west, and Russia challenging USA military positioning. Unfortunately as the financial impact expands, I expect these friction points to increase.
In USA, we still have fraud accounting, suspending mark to market accounting in place since the 1940's in March 2009. Anyone who tells you our balance sheets are sound are using a broken measurement. The tool was changed to mark to fantasy, and we are guessing on our financial soundness.
So why all the drama here?
The world governments have interest rates at near zero. The world has inflated stock markets across the board to near highs. Housing in many countries are near highs. Natural resources are at historic lows. The 'easy inflate economy' buttons have been pushed. The next easy button is global currency wars, and China is leading the charge. Some may argue they are not devaluing the Yuan but rather the rich are exporting their wealth. In any event, the currency hot-potato will begin, the final end game is if-when the USA dollar takes its turn at collapse. I suspect that will begin January 2017.
I actually am very optimistic of USA chances for a record bounce back after this plays out, but that will depend heavily on politics.
Taking emotion out of this, and using long term indicators, the chart is in.
Click this link to understand this chart.
Sell your stocks? Why not take 50% out after such a nice run for 7 years with a market 300% up? Where to put it? I really cant say, 10 year Fed bonds are 2.2% and cant fail. I can say pay off your debts, invest in reducing costs, this is the best action in times of stress.
To the chart Blue line high, orange low is a bear market. Orange high blue low is a bull market. A cross of more than 2% is material, and we are hitting that right now.
UPDATE: 1-10-2015
US Currency and global interest rates are the next act in this evolving story.
Of particular note with the FED raising rates recently, we may have seen generational low in interest rates. If this plays out, again, easy money is behind us. We had interest rates dropping from 1982 until 2015, thats a pretty good run, and another stresspoint to pile into the others.
