I can hear it now from someone reading the title: ‘A HA! this guy is finally bearish after all this time — I knew he would come around‘. That couldn’t be further from the truth, in fact the bearish label is completely inaccurate. I don’t like labels, as when we describe ourselves bullish or bearish that puts us in a specific mindset unable to be flexible. Hence, when we change our minds and decisions with changing markets our tactics are questioned. In other words, don’t put me in a box.
Markets move in cycles and if we’re not able to identify shifts in these cycles, money flows and pricing structures then we will just be making the same mistakes in prior periods. There are many valid arguments for bull market runs but also many good arguments for bear raids. Liquidity and Fed accommodation are at the top of the list, and as long as those are strong you can bet that any pullback/correction will be short-lived.
Will there ever be a bear market? Absolutely, and probably will cycle out the same as prior ones in terms of time and price (but unlike 2008/09 for specific reasons). History tells us most miss a bear market, because they are far to late in identifying the conditions, preferring to continuously buy dips, fight a new trend that is swift, painful and over before you ever had a chance. But if you’re unable to see what is truly happening and be flexible, you’ll get hit. It’s like they said the five things to remember in the movie Dodgeball: dodge, dip, duck, dive and dodge.
The Federal Reserve has been highly accommodative for more than six years and frankly has no plans to remove the easy monetary policy. Oh, we are hearing about rate hike coming, likely to come on the back-end of 2015, but don’t be fooled – this rate hike cycle will be slower than molasses pouring out of a bottle, and may bore the market to tears. A rate hike cycle is likely to change asset allocation models, and if there is any hint tighter money is going to retard economic growth then cash will soon be the big asset class (nobody will be buying stocks or bonds). However, we are far away from that point, and even with low-interest rates we must acknowledge the Fed is still highly accommodative.