The Bull's Still Climbing Those Stairs

Is the stock market ever going to fall? I keep on thinking it could be like 1930, but no amount of wishing from me is going to make that happen. It could be like 1968, which would be especially fitting since the S&P crossed 1000 today.

I've done some more reading and thinking, and I could be wrong about the stock market over the medium and even long term, at least in nominal terms. I've been thinking we could see a major decline, but there's no reason why it couldn't meander for years like it did in the 70s. And in fact, that might be the likelier case, what with the government very interested in propping up the market. If the Dow stays around 10,000 for years, it'll seem like investors haven't "lost" money, though in fact inflation and currency depreciation will belie that. The market could even rise to new highs but still be in a bear market after taking into account real-/currency-adjusted values. So I'm still bearish on the market long term, but this would have different implications on how to trade it.

If shorting the market isn't going to work, we need to look at other asset classes. Besides gold and silver, which I think are the best ways to make money in the coming years, there are commodities, bonds, and the dollar. Considering that the inflation/deflation debate hasn't been resolved yet and probably won't be for at least another one to three years, I'm not as enthusiastic on commodities; you would also need to consider the demand and supply data for them, which aren't as relevant for a semi-currency like gold. Treasuries seem to be a sure bet -- interest rates can only go up from here -- but my worry is that the government will intervene to keep them down. If the government is successful, you'll make no money in nominal terms but lose money in PPP-adjusted terms due to the necessary depreciation of the dollar. If the government is not successful, you'll make money in nominal terms, but you could still lose out in real terms if the market loses confidence in the dollar as a result. Consequently, I think shorting the dollar would be a better bet, since your downside risk should be lower than if you were shorting Treasuries.

Any way you cut it, the future doesn't look very bright for the US, or for the world for that matter. If you can't save the world from disaster, you should still at least try to save yourself.

Stock Market ≠ Economy

With the stock market rally finally beginning to stall, I want to emphasize (and this needs repeating) that the stock market is not the economy. Just because the stock market thinks things are getting better doesn't mean things actually are getting better. We're back to the era of irrational exuberance where nothing can go wrong. Horrible employment numbers are excused away by saying that they aren't as bad as they could be -- yes, falling 90 miles an hour to your death isn't as bad as falling 100 miles an hour to your death... but the end result is the same. This sort of perverse reasoning explains why the stock market rallied when GM declared bankruptcy ("because it removed an element of uncertainty," as if it were ever uncertain that GM wouldn't declare bankruptcy), or when General Growth Properties, one of the country's largest mall operators, filed for the biggest real estate bankruptcy in American history. Sane minds will see that this is a foreshadowing of danger in the retail sector and the possible beginning of the collapse of the commercial real estate market. The real economic pain still has yet to come.

Everyone knows Mr. Market is manic-depressive. There's no reason why you need to be too.