Buy the Dip?

"Wise men don't need advice.  Fools won't take it." - Benjamin Franklin

After this last week and particularly after today there have been a number of people commenting that you should buy this "pullback".  The reasons I have heard range from the educated traders who know that in the next few days that there should be a bounce as the market is really oversold and always bounces at some point; to the completely naive who have been trained by the pigs of Wall Street to believe that stocks are always a good place to be and that a "pullback" such as this offers a great buying opportunity.  "After all (as one person I spoke to this weekend said) the United States is such a great nation that everyone has to invest in the United States stock markets."  How ignorant can you be?

My view is that you should remain well away from the market.  Sure there may be another attempt by the Federal Reserve to bolster stocks and sure with the White House up for grabs next year there will be a lot of time and effort spent trying to make something rally, the reality is that the global economy stinks and is continuing to rot from the inside out.  Until this rotting is reversed and the corpse called the global economy can be brought back to life there is no reason to try to time the market for a short-term bounce.

The S&P downgrade of the United States credit rating is just the tip of the iceberg.  Look at the remaining countries with AAA credit rating and you will see that they all could very easily be stripped of that rating in very short order.  France and Germany have the burden of the rest of the Euro zone on their shoulders, the United Kingdom is struggling to contain its debt loads, Australia and New Zealand will be hit hard by the slowdown in China, Canada is linked by the hip to the United States and to be honest all of the remaining 10 nations are too small to make any difference to the global economy.  A contagion of downgrades will lead to another round of stock market pullbacks.  As debt becomes harder and more expensive to find earnings and growth around the world will suffer and the market will tank.  It is not a hard equation to work out, but for some reason people still think that they should own stocks.

Cash is an investment, and while cash may not earn you anything at present it is better to hold onto what you have than to give away 20 percent or more of your portfolio specifically if the upside is only 10 percent and is marred with risk.  If you are still adamant to be in the market as it is for the "long haul" then look to high yielding solid dividend plays, but to be honest the "long haul" may just be too long for most to bear.

A look at the Japanese market will give you an understanding that the market does not have to recover any time soon.  The Nikkei index reached around 40,000 in December 1989.  Subsequent to that it fell, bounced, fell, bounced and now 22 years later it is still below 10,000.  Yes that is not a mistake, it is still down 75% from its high.  Could the United States markets be in the throws of such a secular bear market?  I believe that this is the case.  Will there be bounces in the market?  Yes but unless you are very nimble and trade the markets daily you will find better value in other asset classes.  Even if I am wrong and somehow the economy changes and we go back to a solid economic footing, there will still be plenty of time to buy stocks and make money in the market during the next bull market.  The problem is that bull market appears to be a long way off.