Sentiment Speaks: The Most Common And Important Question I Have Been Getting Of Late
By
Avi Gilburt
As many of you may have read from my prior articles, I am expecting the market to transition into a major bear market as we look towards 2025. In fact, back in 2016-2018, I began to bring up this expectation to our subscribers. However, at the time, I said that I do not foresee such a major bear market beginning until the early to mid-2020’s. Well, we are now here.
What was really interesting was many thought this bear market was starting in the first quarter of 2020, with the Covid Crash. Yet, that was not my expectation. For those that read my analysis at the time, you may remember that at the end of 2019 I was calling for a 30% decline in the market to begin in the first quarter of 2020, and that was well before anyone heard the word Covid. But, what many may not remember was that I was also saying that I expected the market to rally north of 4000SPX once that correction completed. Many have thought I was a perma-bull due to this view.
In fact, not only did many think I was crazy for my 30% decline expectation, but people thought my further expectation of a rally from 2200 to north of 4000 was “absurd” and “insane,” especially during that period of time when the world seemed to be in absolute disarray, with economic shut-downs occurring all over the world. I think these two comments regarding my expectations represent the common views best:
1 - “I really don't understand articles like these. Pure technical analysis in a time period in which we are facing a once-in-a-lifetime event, as if economies literally SHUTTING DOWN is just something the market is fitting into an unavoidable pattern. . . It is simply silly to predict market moves with technicals when we're facing a series of historic developments in the world. . .
Your analysis seems to suggest that this current downturn is temporary and that the bull market won't truly end until we hit around 4000? That's pure technical analysis without any regard for fundamental factors in the real world. The idea is absurd. We are not going to magically get there on the back of EWT.
Will we hit 4000 eventually? Yes, over the very long term, markets will always go up. However, current conditions suggest that the bull market is over. Rates have been cut to 0. Unemployment is going to spike up. EVERYTHING suggests that we're headed for a recession that will take a lot of time to clear up before we start recovering.
Your entire probabilistic supposition that the bull market is not over SOLELY based on technicals and that we are somehow entitled to another wave up to 4000 while ignoring EVERYTHING happening in the world right now is insane.
I don't see any way forward that would lead to the kind of recovery and massive rally that you've predicted here. At the end of the day, stock prices are tied to economic fundamentals, even though they may swing above or below the fair value. So paint me a picture in which what you say will happen happens. And no, "just look at the chart" is not a good enough justification.”
2- “Coming from someone who still thinks the bull market of January is alive enough to carry us to 4,000, that's highly unmeaningful... Here is the 2200 exactly that you said the S&P would bottom at before taking the trip back up to 4,000... What do you want to bet the ECONOMY is going to pull it down a lot further and that 4,000 is a lot further away than your charts ever said... THIS bull market did not ever come close to taking us to 4,000, and it is not taking us anywhere ever again because it is DEAD. OFFICIALLY and in EVERY way. Every index is DEEPLY into a bear market now. The bull is dead, and so it can NEVER take us to 4000. What you predicted can NEVER come true now... my own resolution is that this market has a lot further to fall because it is now following the economy, which it long divorced itself from; whereas Avi doesn't believe the economy ever means anything to stocks and has told me so several times last year... So, you have that common sense view, or you can believe Avi's chart magic will get you through all of that and is right about a big bounce off of 2200 all the way back up to 4,000.”
Unfortunately, these, like many market views, are based upon a very linear and superficial perspective as to how the market works. In fact, my work has been called “insane” and “absurd” many times over the last 13 years I have been providing my analysis publicly, with the market proving my insanity and absurdity time and again. But, I digress.
So, as we are now within my very long-term target for this bull market of 5350-6000, which I set many years ago, the most common question I receive is how one approaches the potential long-term bear market I foresee?
Well, first, I want to put the path of this bear market into context. Whereas the market crash which set off the Great Depression from 1929-1932 was a straight down loss of approximately 80% within 3 years, I foresee this next major bear market to take a much more up-down type of path.
For example, most people do not realize that the 2000-2009 market structure was actually a larger degree correction within a much larger bull market phase. The drop from 2000-2003 was an initial wave down, the rally from 2003-2007 was a corrective rally within the larger correction, followed by a market crash which began after we struck the top in 2007.
In Elliott Wave parlance, this structure was an a-b-c corrective 4th wave. Now, the bear market I am expecting to begin is also a 4th wave, but of one degree greater than the one we experienced from 2000-2009. Therefore, I am expecting several a-b-c structures similar to the one we experienced during 2000-2009. And, this is also why I expect the upcoming bear market to take a minimum of 13 years, as it is likely to take longer than the 4th wave of one lesser degree which took 9 years.
Based upon what we experienced during 2000-2009, it means that there will be several multi-year corrective rallies which will likely be seen within this long-term bear market. And, yes, these multi-year corrective rallies will present opportunities to invest, similar to the 2003-2007 timeframe.
Of course, the issue will be whether you will be able to recognize it as a potential investable opportunity, or whether you will be mired in the general negativity similar to what was seen at the Covid lows in 2020, as evidenced by the two commenters I quoted above. Believe me, it is not easy to tune out all the negative noise around you and push the buy button. Consider how many of you were able to do so at 2200SPX in March of 2020?
Now that we have covered the potential for multi-year investable opportunities, the next question is what to do during those years the market will decline?
I know many would want to go to gold, as the common mantra is that gold is a “safe haven” from market volatility. I am sorry to bring you to the world of reality, but that is far from the truth. It is just another market fallacy regurgitated over and over by the talking heads. Consider that gold lost over 30% of its value while the stock market was crashing in 2008. In fact, I am foreseeing a multi-year bear market in gold also beginning once the current rally completes.
Of course, many would want to run to the safety of Treasuries. However, I must warn you that, when I look out several years from now, I am seeing strong potential of a Treasury market crash coinciding with a stock market crash.
So, at the end of the day, we are still left with the question as to where to hide during these times of market negativity? Well, based upon my analysis, the best answer seems to be cash. Yes, I know it has been drilled into many of your heads that cash is trash. However, consider that if you sell Apple (AAPL) at 100 and it drops by 30%, you can then re-invest your cash at much better prices. Your cash has now become relatively much more valuable.
Moreover, I actually see potential for a multi-year – if not decade long – rally in the [[DXY]] once this current weakness in the DXY market finds its low over the coming year. And, if you think that sounds crazy, well, consider that I called for a rally in the DXY to begin in 2011 with an initial target of 103.31 when the DXY was at 73. And, most consider that to be a much more crazy call, since everyone at the time was expecting the DXY to crash due to all the QE being injected into the market. Yet, as another example of my absurdity and insanity, the DXY hit a top of 103.82 (within 51 cents of my target set 6 years earlier) before it began the next multi-year correction I expected.
However, this now presents us with another dilemma. I am foreseeing another major financial crisis within our banking sector. You see, while there was one major issue which caused the banking crisis in 2008-2009, there are 5 major risk factors sitting on bank balance sheets today which can cause an even worse financial crisis. These risk factors include major issues in commercial real estate, rising risks in consumer debt (approaching 2007 levels), underwater long-term securities, over-the-counter derivatives, and high-risk shadow banking lending (which has recently exploded).
And, as I stated in my last article, imagine the extent of the potential financial collapse we could experience if two or three of these factors begin to implode at the same time. I will now let you in on a little secret: When the next major bear market begins, most, if not all, of these risks will likely trigger into a potential avalanche in the financial sector, such which has not been seen since the Great Depression wherein more than one-third of all banks in the United States collapsed. And, we have outlined these risks in the major banks in our public articles.
This now leaves you with the problem of storing the cash you raise. Again, when you consider that over 35% of banks went out of business during the Great Depression, you now have a tremendous responsibility to find the safest banks possible in which to store your cash. And, it would be best to diversify that cash into several of those banks.
When my subscribers were having difficulty in finding banks on their own, I then hired a banking analyst and we sought out the top 15 banks in the US, along with the top banks we could find in Canada and the EU. So, if you would like some help in identifying safer banks, you can use the due diligence methodology we lay out here - Our Methodology & Ranking System: Banks - SaferBankingResearch
So, in my opinion, the most valuable analysis you will need during this impending bear market is being able to identify when the market is approaching major peaks so that you can raise cash, and when the market is approaching major troughs so that you can deploy that cash. A buy and hold approach could hurt those that are approaching retirement during the next 13-21 years. And, being able to store that cash in safe banks will be of utmost importance.
“By failing to prepare, you are preparing to fail.” – Benjamin Franklin
