Not sure how the market will behave during this time. At times bull market rallies followed by bear market dips….its decoupled from gold behavior for the most part.

We know gold bottomed in 2000…gold cycles last around 10 years or more. It could last longer because more excesses need to be wrung out of the system this time.

That said, why don’t you send in a guest post with your perspectives on this topic, and I’ll post it.

1) The great myth is that the market always goes up. Welcome to a down / sideways market at best for the next 8 years.

And BTW, commodities have outperformed stocks since 1959. Read the section titled “Commodities to Again Outperform Stocks” here:
http://www.marketoracle.co.uk/Article3759.html

How do I “know” what i “know”? I am trend following… PPI is higher than CPI, which means that corporate profits will continue to suffer due to higher input costs. Corporations that produce anything but services are victims of inflation until that cost can be passed to the consumer. When those costs are passed to the consumer, wages must rise to maintain current living standards or we enter a painful deflationary recession.

The Fed will not allow this to happen, as they have already put forth with their lack of action to increase interest rates. Instead of doing the right thing, they have committed 2/3rds of their balance sheet to reflation. And now the Treasury is basically nationalizing the credit market through fannie and freddie. Basically, no one can fail. In order for this to happen, the Fed has to continue devalue the dollar, because Americans can’t stomach the alternative.

Inflation is the cruelest tax of all. Think of those on fixed incomes… And the Government feeds us junk numbers on CPI and GDP because apparently we can’t see the reality:
http://video.msn.com/video.aspx?mkt=en-US&brand=money&vid=bdd778ab-dd64-436a-962e-7d40a576c03c

We are entering an inflationary cycle that will not end until the Fed stops printing money and the production (supply) of raw materials of everything, from lead to greasy wool, catches up with demand. Historically, bringing more commodity supply online takes many long years.

Investors do not buy mutual funds and hold them regardless of market. Nor do they buy bonds in inflationary environments because they know that in real terms they will have a negative return. If you are Pimco, and can negotiate high rates of returns on senior debt of a particular company, the bond picture is different to a degree. But in general, a 4 to 7 percent bond or t-bill is a net loser. Remember M3 is growing at 16%.

Mutual funds spread risk… but they also lessen gains. Investors are better off doing what successful investors do… look at all the options and target the trends until that trend runs its course.

The next trends, to name a few, will be continued dollar decline, travel and tourism, agricultural commodities (due to food shortages and silly energy policy), the yen carry trade unwinding, and clean water shortages.

Since you mention gold, my 3-5 year target is $2300.00 which is roughly 130% and silver goes to $30 plus. I’ll take my 100% gain over any “get me back to where I was before the downturn” in the market. By the way, oil goes to 170-190. When these targets are hit, it may be time to buy a mutual fund or 2… It just depends on the trends.

well. And in addition, Buffett’s timeline is forever.

Example, Buffett bought Carmax at 20+ and that position has been cut nearly in half. If you have Buffett’s cash

position, of course you buy more. If you have no cash position and are fully invested, you either have to wait for

KMX to go up 100%, sell and sit in cash until the downtrend is over, or sell and put your money elsewhere. who knows how long it will take for

KMX to go up 100%?

Trends:
Buffett began creating a great deal of wealth when he bought good companies at low P/E’s around 7 or 8 35 years ago

when the baby boomers began entering the work force and consumer marketplace. Again, the trend was in Buffett’s

favor. He had the largest consumer force that the US had ever seen in the baby boomers buying goods and services.

They also contributed heavily to the stock market gains as more and more money flowed into 401k’s. Many of these

people knew nothing about the stock market but in 1974 because of the changes to the laws, became “investors”. Any

of us can look at a chart and see what the market did as this money floated the market.

New trends:
78 million baby boomers are retiring, and money will flow out of the market. But there is a population 10 times the

size of the one here in the US in southeast Asia. This market is developing a middle class that wants to live the

way we live here in the states. In order for that to happen, raw materials are needed for building roads, housing,

electrical grids, cars, busses, trains and of course all the consumer staples. When you factor in the energy needs

and the supply and demand equation for crude, its easy to see why oil is where it is. This is one of reasons that

commodity prices will continue up and to the right for the next 8-10 years.

More trends:
Currently, Buffett is selling insurance that basically amounts to index calls. In the form of derivative contracts, he guarantees the buyers of this insurance the the market will be higher than when the insurance was purchased in 12 – 15 years from now. He has taken in some 2.5 billion in this derivative. This is beautiful in a lot of ways, but mainly, buffett gets 2.5 billion of todays dollars (in terms of buying power) and will pay back the money in the future if necessary after inflation and any return he may have made. This is classic Buffett, he is looking a future trends in dollar valuation and market valuation. Furthermore, if you bought this insurance when the market was at 13000, it only has to go to 13001 for Buffett to be off the hook for payment, and yet the market has done nothing.

The simple fact is, its better to get out of a losing position while the trend is down unless you plan to buy more

of that same position as the market falls… AND be willing to wait whatever amount of time necessary to get out of

that position. So if your time frame is forever, buy and hope… if your time frame is 3 years, get out.

How many retirees are getting nervious in this market? I can say that if i had worked 30 thirty years and built my

nest egg, i would be more than a little concerned with the market over the next few years.

Say i needed a million, and i achieved that and was ready to tell the boss man to shove it. How many years extra

would i need to work to make up the difference of even a 25% loss in portfolio value? No one can answer the

question because no one can tell me exactly how long the markets will be down and how long it will take to make the

money back. This loss can take not only my money, but valuable time that i plan to spend living my retirement

dreams.

To say the markets always go up is naive… and can be dangerous to those without a Buffett like forever timeline.

The better option is to recognize the trend and alter course accordingly.

There is nothing technically wrong with owning american companies… There are some good ones out there, but 80% of

mutual funds underperform the market. You can’t like those odds in an inflationary down market.

The dollar has been in a down trend for 8 years. So, why would i suggest sitting in cash? i wouldn’t for long

periods of time. Do this if you are waiting for a particular trend to develop before putting it to work. Obviously

some return is better than no or negative return. Or do this is if you believe in the lesser of 2 evils: inflation

while sitting in cash may be less devaluation than your portfolio losses in a bear market. You have to decide.

Again, because the Fed has shown its cards on reflation, i convert cash to items of value like silver, gold, oil,

or foreign currencies depending on the circumstances. Anyone can buy these items through your local coin shop, etfs, etns or through everbank for foreign currencies. Remember Gresham’s Law.

Of course we can agree to disagree all day, and again don’t take my word for anything. look up what people smarter than me are saying. There are some good names in my previous post.