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November 18, 2014

Investment Tips for the current Bear Market

According to Jesse Livermore, most people don’t want to study the market or invest

intelligently, they just want tips to play the Market, in hopes of getting seriously rich,

and as Robert Shiller points out in Irrational Exuberance, the United States’ Annual

Wager stated as “the amount people lost on gambling in 2000 was more than they

spent on all other forms of entertainment combined: including movie tickets, recorded

music, theme parks, spectator sports and video games”.

So if you’re one of these, players and are looking to gamble for fun & excitement, follow

these tips, and your odds of beating the house, and the herd, will be higher than if you

were an “ace” card counter.

1) This is a Bear Market, in a Bear Market all stocks go down. Don’t hold any long

stocks, they are money down the drain.

2) Don’t fall for the long-term Buy & Hold strategy – In a super-sized Bear Market the

long-term could out-live you.

3) Because the dollar has been debased & abandoned by the Fed in attempts to

“spend its way out of deflationary recession”, T-Bonds will get killed. All bonds sync

with Treasuries. Don’t hold any bonds.

4) In simple terms, that leaves Cash, and the best cash is held in appreciating

currencies, as opposed to depreciating dollars. If you can think cyclically, realize

that all such extremes of the pendulum swing are mean-reverting via the opposite

extreme. Since June, the greenback has appreciated over 7%, its nose-dive

devaluation is bound to be far more spectacular. In fact, its 7% climb is analogous to

climbing the high-diving platform prior to a Dive.

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5) While most currencies will appreciate against the US dollar, the €uro will likely

appreciate the most, as the single currency becomes the repository of choice for

safe haven capital globally, particularly funds flowing from China & Japan. The last

time the dollar faltered, a wave of funds flowed into the €uro, concurrent with much

talk about pricing Oil in Euros, as opposed to Yankee dollars.

6) In aggregate, China & Japan hold over 40% of US government debt. As the second

largest currency, the €uro is bound to receive the lion’s share of new money, as

well as flight capital from plunging US dollars. The single currency is only beginning

a super-sized Bull Market. Analogous to the trajectory of US stocks beginning in

1982, the €uro is in the early stages of a long-term speculative bubble, as opposed

to the $US, at the edge of a steep precipice.

7) Now is the time to hop onto the €uro bandwagon before others do, as more and

more others catch onto the trend, the feed-back loop described by Robert Shiller, &

a function of the market’s transcending Elliott magnitude, demand for the €uro, & its

price in dollars, will be driven higher like a rocket launch. You stand to make the

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most in dollar terms by side-stepping US dollar deflation, in appreciating €uros, and

then to buy back dollars at the trough. Measured in terms of the US Dollar index, the

greenback will trough at approximately 73, from its current lofty level of 88 for a 17%

return. 88-73=15/88 = 17% If we compound the dollar’s decline by holding €uro’s,

its concurrent appreciation will likely bump up your return to a 25-30% in the next

12-18 months, with little risk & zero leverage.

8) The Fed has been printing money on, and off, for 18 years, and steadily for the last

14 years, while the European Central Bank has only just begun to seriously print

money in the last two years. Compared to the US dollar, the €uro’s value has been

diluted relatively little by unprecedented monetary easing.

If you’re still craving action

If you’re still craving action, set aside 1/3 of your funds to intelligently invest via

Exceptional Bear’s Market Timing signals on 11 Exchange-Traded Funds

(ETFs).The charts below show our strategic asset allocation from the perspective of

the minimum gain to the 2009 trough, where they appreciated disproportionately.

The Crash ahead will easily exceed these valuations, eventually by a multiple of at

least 4x. At the bottom right you see Elliott’s A-B Base, from which a new Bull

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Market launches, to indicate the plummet of all long asset classes, without

exception.

Short US Small-Cap stocks,

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Short Financials

Short Real Estate

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Short Biotechnology

Short T-Bonds in an inverse Bond Bull Market

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Short China – for the longer-term

We remain long China until the completion of the b-wave reversal on bottom right.

Short Emerging Markets

We remain Long Emerging Markets until the completion of the b wave reversal on bottom right.

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Long Gold –Commodities are often inversely correlated to stocks, gold troughed in late 2008

Long Oil - Commodities (particularly oil & gold are valued in dollars and due to spike to reflect the

dollar’s plunge in purchasing power, to compound Commodities inverse correlation to stocks)

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Long the $VIX Volatility Index - Next comes the Spike in Wave V

Obviously the Fed will step-in with its “magic bullet” at some point to prop up markets

after a precipitous decline, so you cannot Buy & Hold any asset classes as if this were a

Bull Market - Bear Markets are highly volatile and are optimally swing-traded against the

irrationally stampeding herd. When the herd can’t get enough of our inverse funds at

any price, we scale-out 1/3 of our position, if the feeding frenzy forces prices to highly

exuberant extremes, we scale-out another 1/3, and then wait for the reaction to subside,

to buy back the same ETFs at a deep discount. Herds tend to be very impatient, and

are always running to or from something, they lack staying power. Done over and

over, this Bear Market strategy compounds capital faster than any other.

Such swing trading has a steep learning curve however, and the market extracts a high

tuition from those who attempt to gain proficiency by trial and error. To attempt to learn

swing-trading via hard knocks is penny-wise, and thousands of dollars foolish. The

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Market delivers her lesson, and presents you the bill only afterwards. Our subscription

fees are far more modest.

To view the long-term charts included in our inverse ETF allocation since 2009, follow

the link to “Public Stockcharts”, click here. If you already subscribe to Stockcharts, I

would appreciate your vote.

Eduardo Mirahyes