I was waiting for it to happen. Whenever bear markets strike, buy-and-hold proponents come out and tout the wisdom of their ways. Leading the pack as usual is Jack Bogle, founder of Vanguard who had this to say:

“If you’re following the rules of asset allocation, diversification and long-term horizon, stay the course.”

Sure, along that long-term horizon, we will all be able to retire just about 6 years after we’ve died. Be realistic and take a look at some bear market numbers as of right now.

Most investors, who stubbornly stayed in the market, have lost some 40% of portfolio value this year. That means that a $100k portfolio is worth now about $60k. Even if you feel comfortable with that, and I doubt it, you will now have to make some 66% return on your $60k balance just to get back to even.

How long will that take? Well, if the markets cooperate, you might make it back in some 7 years. That translates to you just having wasted 7 years of your financial life that could have been used to grow your assets, even at a slow pace.

Bear markets have a way to restore some sense of reality in the investment world, and it’s easy to forget that a bear can always lurk around the corner and wipe out many years of your investing efforts. If this has happened to you, I feel for you and recommend that you revisit your investment strategy and review how to better prepare for the future.

No one investment approach is perfect, but using a simple trend tracking strategy along with a clearly defined entry and exit method will most certainly avoid the big portfolio disaster.

Once of my clients put it best when he emailed me saying that “It never felt so good to sit in cash with this crazy market while all my work buddies are seeing their work years extending by the day! Thanks!”

No surprise in this story as MarketWatch reports that “Fed to lend billions more to AIG:”

The Federal Reserve announced Wednesday it was lending billions of additional funds to cash-strapped American International Group Inc.

AIG came under fire in Washington this week as members of Congress, the White House and Democratic presidential candidate Barack Obama said the firm should not have spent $200,000 on an expensive retreat at a luxury hotel after receiving the government bailout. AIG said the event was for independent life insurance agents, not for AIG executives.

Why not have a few more parties. Once you get a commitment that you will be bailed out no matter what, why not reach in the cookie jar again? What’s another $37 billion among friends?

Personally, I just have to question the insanity behind all of these bailouts. Once the $50 trillion derivatives market starts to crumble, there is no entity large enough to lend a helping hand. The combined world economies can’t print enough money to support that perfect storm, should it ever decide to make a black swan appearance.

As I announced Friday, I will be heading to Germany for my annual visit, so my blog posting will be more irregular.

Last Thursday was unusual in that there were no emergency moves by the U.S. government, which to some was the best news we’ve had in a week.

It gets pretty tiring to repeatedly hear the barking about the constant attempts to stem the fall of the market, none of which have worked so far and none if them will work in the future.

Mish at Global Economics put it best recently, when he elaborated on the crisis:

The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.The root cause of this crisis is fractional reserve lending, and micromanagement of interest rates by the Fed in particular and Central Banks in general. The Fed started the party by slashing interest rates to 1%, but Central Banks everywhere drank the same punch to varying degrees.

The Greenspan Fed lowering interest rates to 1% fueled the initial boom, but like an addict on heroin, the same dose a second time will not have the same effect. The Fed, the ECB, etc. could have slashed rates to 0% today and it would not have mattered one bit. The reason is simple: There is no reason for banks to go on a lending spree with consumers tossing in the towel, unemployment rising, and rampant overcapacity everywhere one looks with the exception of the energy sector.

Consumers are tapped out, not just in the US, but in nearly every country on the planet. We had our party, and a fine party it was. However, the party is over and the bill is now past due. The price is a global recession. That price must be paid no matter what Central Banks do.

Despite this tremendous market drop, which has annihilated many portfolios, there is bound to be some rebound on the horizon. Chances are that it will be a dead cat bounce, so I would not count on that being the reversal leading to a long-term recovery.

I have said before that this bear market has the potential to make the 2000 – 2002 period look like a walk in the park and so far, unfortunately, it already has exceeded the severity of that period.

Staying on the sidelines until a clear uptrend can be identified is the wisest course of action.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Another week in which buy-and-hope portfolios got slaughtered.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -16.98% thereby confirming the current bear market trend.



The international index now remains -25.71% below its own trend line, keeping us on the sidelines.

For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Despite a concerted effort of the central banks around the world to lower interest rates on Wednesday, the markets popped and then dropped with Dow losing 189 points. The current losing streak has now been 6 days, and some of the major indexes are having their worst percentage loss this century.

Here’s what the Fed said:

Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months,” the Fed said in a statement. “Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

No kidding; what took so long to figure that one out?

Here’s another worthy quote by a British research firm:

The action “suggests that the authorities are now fully awake to the scale of the financial crisis in the markets,” said Douglas McWilliams, chief executive of the London-based Center for Economics and Business Research.

[emphasis added]

I sure hope that all authorities are now fully aware of the depth of the crisis, which many of us have been reading and posting about on the internet since last year. However, being aware and being able to do something about it are two entirely different things.

In my view, no concerted effort will stop the trend that is currently in place. It has to play itself out and, eventually, we will see a rebound of some sort. At first, most likely, it will be a dead cat bounce, which eventually could turn into a new major uptrend.

I don’t think we’re even close, and my Trend Tracking Indexes (TTIs) confirm the severity of the current bear market. The domestic TTI has dropped an amazing -13.13% below its long-term trend line while the international TTI sits -22.97% below its dividing line between bullish and bearish territory.

Cash is King!

Another drubbing yesterday pushed the major indexes down to their lowest levels in some 5 years. The speed with which the markets have fallen surprised many and in the process destroyed just about all Buy-and Hold portfolios.

As I have repeatedly said, investors need to lose some serious money before they will awaken to the fact that they have been sold a bill of goods via the idiotic advice of buying and holding a portfolio into oblivion. I know, because I had my share of calls and emails from furious investors, who had their accounts with major money management firms, only to see them lose some 40% so far this year.

I have been saying the same thing over and over again that this bear market has the potential to make the last one (from 2000 to 2002) look like a pimple on a gnat’s butt. As always, most investors don’t see the light until it’s too late and major portfolio damage has occurred. If you still have any money invested, head for the sidelines, regroup and review your investment approach as well as the guidance and advice you have received.

Right now, the markets seem to simply ignore the Fed’s latest steps to intervene as another useless attempt to stem the tide. The bear is in charge right now—so don’t get in the way of the downtrend. Why? Because you don’t have enough money and time to outlast this one and then try to attempt to make it back. Being a broke hero, is simply not worth it.