To be or not to be..

Many traders and investors are asking if the bear market has ended? Are lows in, and if so is the new bull market underway? Will we make new all time highs this year? The answer to all of these questions is a simple NO! Bear market rallies are very strong when they occur and can many times lure the speculator or investor into it’s web of deception. This is simply due to a massive short squeeze that generally takes place. Many times the rally will feed upon itself and real buyers will go long for the ride higher while it lasts. Market mechanics have been repeating since the beginning of time throughout history. Often it is very similar to a pendulum that swings to extremes from one side to the other. In 1637 in Holland the market place went wild over tulip bulbs. A new rare tulip was selling for over 20 times the average yearly salary of a skilled carpenter. This is obviously not the first mania to occur and it certainly will not be the last.

In 2001, Alan Greenspan, the then Federal Reserve Bank Chairman lowered the Fed funds rate to 1%. This caused and triggered huge speculation in housing. At the time the U.S. was in a big recession and a strong bear market as the dot com bubble had burst and the 911 tragedy took place. Stimulus was needed and rate cuts were part of the answer. In late 2002 a construction boom was starting. New jobs were created from the new boom that was taking place. Landscapers, carpenters, tool makers, mortgage brokers, and bankers to name a few occupations were just a fraction of the jobs created by the new bubble. Everything was fine once again in Mayberry. The President was bragging about record home ownership and record employment. The banks were lending like never before to anyone who had a pulse and no document or no income check loans became the loan of choice. Home flipping became the new business to be in and the adjustable mortgage was the greatest creation since the wheel. The Dow Jones Industrial Average hit a new record high of 14,200 and the talking heads on TV didn’t see an end in sight. What a tulip bulb!

In 1929, Joe Kennedy is quoted as saying, “when the shoeshine boy is giving out stock tips it is time to get out of the market”. In 2007 gold outpaced the Dow Jones Industrial Average by 300% and commodity prices such as oil were soaring. However, this was called growth due to China and India. There is always a story or catalyst in the headlines for everything. If I had a dollar for every time I heard that housing prices would never go down because we are running out of land I could build my own Dubai. There are four major factors or emotions that drive the markets. They are fear, greed, hope, and ignorance. We are seeing all four emotions in play since October 2007 and we suspect they should continue for a long time to come.