Not Just Another Bear Cycle

Jul.14.08 | About: Financial Select (XLF)

The Financials (NYSEARCA:XLF) dropped another -6.02% last week, which means that in the ten weeks since May 3, the average WEEKLY loss in XLF is -4.05%. If you have been long financials over this period, your portfolio has been whipped. If you have been 100 percent invested on the long side, your portfolio has suffered greatly.

Interesting that Financial Entertainment TV is only just now getting around to talking about a Bear Market, as in ‘maybe it is; maybe it isn’t’. But then, long-time members of this community know how to handle the sell-side shills of FETV. For the most part we ignore them and focus on prices plus our extensive and growing discourse.

Over 52 weeks, by the way, the XLF loss is -47.77%, which means that to make back this capital loss requires a gain of +192%. As I wrote a week ago, that’s going to take some time, which is the principle behind why I have been predominantly negative in this blog for the past couple years.

I even got tired of pointing to the cause, which is the run-up in debt into which Humongous Bank & Broker pushed clients. But I can’t seem to let it go that Mr. Moral Hazard, who runs the US Treasury, is largely to blame for promoting the market’s excesses and now coming up blank-faced and blink-eyed when asked by Rep. Dr. Ron Paul to testify as to whether or not the Treasury has a strong USD policy in place.

As long as the Talking Head anchors keep their collective yap shut and let the testimony run, FETV can teach the independent trader a lot about these so-called leaders. It is a tough job, even for such a practiced artist like Henry Paulson, to suck and blow simultaneously.

In any case, some of those commercial and investment banks that supported Paulson’s Folly are no longer in business. They are now bank-rupt. Actually, if it’s ethics we’re looking at, some of them were bankrupt a long time ago.

I have read where commentators opine that this is just a normal Bear cycle. I say not! Never has there been such intense pressure by banks to expand credit and then to suffer the effects of capital destruction when borrowers failed to use that credit to build offsetting economic wealth.

To hide the problems, the Fed dropped the publishing of the M3 calculation, although I have yet to hear anyone in Congress ask if the Fed still calculates it and to testify what that number might be. Alas, as most of us knew at the time it was abandoned, M3 would have focused the market on credit expansion and the increasing gap with wealth expansion.

Then, to worsen matters, the Fed replaced liquid currency reserves on its balance sheet with illiquid investment holdings of failing banks. To an honest banker, that too makes no sense other than to serve as a facility to hide the problems and prolong the suffering of shareholders of these failing banks.

I suppose that these scoundrels in the leadership will ensure their legacy is protected by the typical rewriting of history that goes on in America by people in powerful positions.

All of this commentary is proof positive why I trade like I do: (i) focus first on risk, (ii) then focus on quality companies, and finally (iii) focus on price of the stocks and use trend and cycle studies to determine one’s Accumulation/Distribution mindset, and Buy/Sell tactical decisions.

At the end of the day, as long as you remain independent, objective, clear-headed, and use common sense, your portfolio will perform in the top quartile or higher of all investors, including those of the market insiders, like bankers and corporate officers and directors.

While you might not have avoided the full -21% decline in market prices since the cycle peak last October, many of you have.

Moreover, based on what I have read on my blog, many of you were short the shares of companies like Countrywide (CFC), Bear Stearns (NYSE:BSC), Wachovia (NASDAQ:WB), Merrill Lynch (MER), Lehman (LEH), Fannie (FNM) and Freddie (FRE). You profited from the falling market. And, when done legally, you never considered your shorting practices to be un-American.

In addition, many of you here have learned to appreciate the importance of trading prices, which is what investors in capital markets do. And for that, now your life has changed for the better. Moreover, from the commentary in the Discourse last weekend, I can see that many of you are helping others, which was my objective from the beginning.

I cannot thank you enough for your helping me, and for informing me. When you think of it; one hundred thousand sets of eyes is always going to see more than one set.

We all can contribute something to a better society, you know. A word here or an observation there; you would be surprised how it could suddenly turn on the lights for people who had never thought about such things.

The world may be growing smaller, but it’s still a big and daunting place when it comes to protecting and growing our wealth. For the past year, it’s been a dangerous place.

Consider how far the global stock market has fallen since mid-October. This chart of the Dow Jones Global Index shows the cycle peak at 320.33 in October and 255.86 presently, which is a loss of -20.13% worldwide in nine months. For example, for the S&P 1200 index of global large cap stocks, the total loss in equity is an astounding $6.5 trillion.

By helping any and all of you avoid those losses, at no cost except for your time, just think what this community is doing for social equity.