Why Cyprus Does Matter

| About: SPDR S&P (SPY)

The Current Bull Market just turned four years old. It was on March 6, 2009, when the S&P 500 hit an inter-day low of 666. Now here we are just over 1550. The market is now 133% higher than it was on that fateful day.

I have been fortunate to have been invested during this 48 month old bull. But as always, I keep one foot in the door and a foot out of the door. Bull Markets do not last forever. They eventually end.

During this current bull we have had threats from Greece, Italy, Portugal, and even Washington D.C. So far the bull has showed its resilience and has even recently climbed to new all-time highs.

Now the latest threat comes from an island nation in the Eastern Mediterranean sea by the name of Cyprus. Cyprus is basically half Greek and half Turkish. Sunni Islam and Greek Orthodox live side by side in relative peace, while their government leaders spend, and spend, and spend.

Some Cypriots are savers, some live from paycheck to paycheck. Right now, it is not good to be a saver in Cyprus. It is better to be like the government, spending beyond your means. Savers are about to be punished.

It seems that the government is attempting to set a new precedent by asking those who do not spend beyond their means to help bail out those that do. A saver stands to lose 10% of savings in an overnight move that could forever shake confidence in the Bank of Cyprus.

Living on the Mexican border here in San Diego, California, I remember the day when Gringos loved to invest in banks across the border to lock in huge interest rates, much better than those offered on the American side of the border.

Americans were stunned to wake up one day and read that Mexico had devalued its currency. Their savings accounts took major haircuts in these overnight moves by the government. Faith in the banking system waned and it took years to get it back.

I don't think that the move by Cyprus is a threat to our current bull market, but it sure is a warning shot fired over the bow of all citizens that live in a country that spends more than they take in. It gives new meaning to the term FDIC insured.

Speaking of the Bull Market, just how does it look after four years of climbing many walls of worry?

Let's begin by taking a look at the current ranking of the asset classes that we have to choose from:

Data from Best Stocks Now App

Risk-on is still in force for now. This has been the case for quite some time now. I just love trends in the market. Money can be made as long as trends stay in place.

Small-cap domestic stocks, mid-cap domestic stocks, growth stocks, REITs, and a little bit of sovereign debt continue to be the best places to be invested.

We can also learn a lot about the current state of the market by keeping tabs on the worst asset classes to be invested in:

Data from Best Stocks Now App

Being short the market continues to deliver almost unbearable pain to the perma-bears. Sitting on the sidelines in cash continues to have a very high opportunity cost, and gold-bugs continue to look for inflation but can't find any.

Commodities and emerging markets also continue to be poor places to be invested right now. China is down 7.4% year-to-date, while the S&P 500 is up 9.4%. That is a huge difference. That is why it is important to be invested in the Best Asset Classes Now, not the ones you hoped would be.

Lastly, let's take a quick glance at the best sectors in the market now. If equities are the best play to be, that is a big ocean out there. We need to narrow our search down a bit:

Data from Best Stocks Now App

For the umpteenth week, the biotech, building, drug and transportation sectors continue to lead the market. Throw in a little bit of retail and you have a good basic formula for building a portfolio.

Here are the worst sectors to be invested in at the current time:

Data from Best Stocks Now App

Offense continues to trump defense for now, this four-year and counting Bull Market remains intact for now.

I don't think that Cyprus is the event that brings the bear out of hibernation, but I continue to keep one eye down the road, and the other in the rear-view mirror.

Clients of Gunderson Capital Management are long IBB, XHB, and IYT.

Disclosure: I am long IBB, XHB, IYT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.