Stocks Enter Bear Market Territory

The doom and gloom is really getting excessive as stocks enter bear market territory. There will be more and more calls for stocks to break through to new lows, which is just not reasonable to me. The dollar and Treasuries are rising during this crisis because central banks need them as reserves. It is like a game of musical chairs where practically every single bond/currency gets sold until just gold and the dollar are left standing. Then it will be time for the dollar to more or less collapse and gold to explode.

The last time treasury yields were this low was near the ultimate bottom in stocks. Warren Buffett penned a NY Times Op Ed piece about how he was buying stocks. Gold shares rose while the rest of the market fell into March 2009. Take the hint and start accumulating your position.

I fail to see how buying Treasuries right now at 1.8% is better than buying a blue chip like Coca Cola with a 2.8% dividend yield. I'm scratching my head on this one, and trust me, the smart money is too. The present value of stocks is obviously fair with very little forward looking analysis. But if you account for the bubble in bonds, the future flow of capital, and the extended period of consolidation in stocks since 2000, you will see that stocks are poised for a rocket launch move. This is not a consensus view, but the big trades are NEVER consensus.

I personally bought precious metals related stocks today in full knowledge that this is probably not the ultimate bottom. To be honest, I don't care. Markets are driven in part by human nature, which guarantees that even insane value will get sold and sold, defying all logic. I am not looking 3 or 6 months down the line- I'm looking out 5 years. I really believe that the only way you can create outsized returns is by looking out far into the future. Not many investors truly think this way, which is why even most professional money managers can't even beat the market.

Anyway, reread Buffett's piece because there is a lot of wisdom in there. He admitted that the economy would continue to go from bad to worse, but he was determined to be  greedy when others were fearful. He also more or less said that bonds were a horrible investment. How much more true is that assessment today after we added over 4 trillion in new debt?

The key to investing is to take the exact same information but to interpret it in different ways. How bears on America are predicting a stock market crash when this implies a dramatic rise in the dollar is beyond my comprehension. Bears on U.S. Treasuries should automatically be bulls on stocks.; this is a pretty clear inverse relationship moving forward. We have all seen the rise in gold and it is no secret, but people still don't realize that there hasn't been a doubling of price in a very short amount of time, which is what should happen at the end of a bull market. As time allows, I'll write articles with charts that take the long view. It will be time to get very aggressive in stocks and gold relatively soon.

Stocks Enter Bear Market Territory is a post from: Expected Returns