Making Money In Bull Markets and Bear Markets (Episode 18)

Great. Thank you, Kate. And it's an honor to be here. Yes. My business is focused on helping individual investors, profit and beat the market in both bull and bear markets. I look at, uh, four key sets of objective indicators to do this. I look at valuation metrics testate long-term returns. I look at leading economic indicators to determine where we are in the boom and bust business cycle. I look at sentiment indicators, which are leading indicators for changes in bull and bear market trends. And lastly, I look at technical trend indicators to determine kind of exactly where we are right now in a bowl and bear market. So in a, there are three basic ways to profit in investing and beat the market. The first way is the way that most people do, which is the most traditional way. It's also the hardest way to do it.

And that is to pick individual stocks and ETFs with strong, fundamental and technical characteristics. That outperform that's what I did in my career for over 22 years at Allan's global investors. That's what I do now in my website as well. I look for individual stocks and ETFs with, uh, strong fundamentals and technicals that can outperform and that works great. It's difficult to do, but it works great. Particularly in bull markets in a bear market, it's much harder to find particularly stocks that will go up and that profit, the bottom of the bear market in 2008, only about 3% of stocks were trading above their 200 day moving averages. So 97% of stocks were in down trends. So in, in a bear market, it's really hard to profit that way. If you can identify a bull market and you can identify a bear market, then it, it becomes much easier in a bull market.

Once you have identified that it's easy to match the market, of course, by buying, uh, you know, an ETF such as the spy, you know, matching the S and P 500, it's very easy to also beat the market substantially simply by buying levered long ETFs. So there are ETFs that, that go up double some even go up triple the amount that you know, the market goes up. So if the S and P 500 is going up 10%, usually in a bull market, uh, stocks will go up at least 10% a year. If the S and P five hundreds going up 10%, you can buy a levered long ETF that goes up 20%. That one, the ticker is SSO. It's an ultra S and P 500, uh, there's one that goes up double what the NASDAQ 100 does. It's the ticker's, QLD, there's a levered long ETFs for really all major Jurassic classes, us stocks, international stocks and others. So that's in a bull market in a bear market. And bull markets are really easy. If all we had were bull markets, life would be wonderful and investing would be, would be great.

Exactly. We can talk about what's gonna go up the most. That's much more fun. Mm-hmm , but in a bear market, and they're rare, they don't happen often, but, uh, when they do happen, they can be really brutal. And as you know, we had a couple of really brutal ones in the early two thousands, and then 2008, 2009. And in that case, there are some stocks, you know, that you can find that again, maybe two or 3% at the bottom of a bear market that are still going up, those are hard to find. The easier way is to look for ETFs that are going up, you know, defensive type ETFs in 2008, 2009, for example, the, uh, you know, long government treasury bonds went up about 25%. So you, the standard thing in a bear market is to switch out of, you know, generally out of cash and into bonds, government bonds. So that usually works in a bear market. It did not work in the 1970s bear markets, you know, where we had very high inflation and we're having high inflation now. So as you know, bonds have been tough now.

Yes. I mean, I think they're moving in some ways, because we're in such an unusual period, really the first time in most investors, lifetimes, where we've had high inflation, inflations running 7% now, you know, that's really accelerated in recent months. It is. And it is like the 1970s and the 1970s, you know, were a terrible time for stocks and bonds. You know, traditional financial assets were, were terrible, but it was great for commodities. And that's what we've seen since the March, you know, 20, 20 low, we've seen a massive outperformance of commodities and significant underperformance of bonds. So bonds have really taken a hit with the high inflation stocks, you know, have done very well since the, obviously the March 20, 20 lows. Uh, we had, you know, 40% increase in the money supply, which has fueled this inflation we're seeing now, but it also fueled this big bull market in stocks.

So I think that's why we're seeing a divergence lately between, uh, stocks and bonds, but, you know, stocks have, uh, have weakened, you know, quite a bit the last couple months, which we could talk about. But generally, if I don't think we're officially, I wouldn't say we're officially in a bear market now, although most in terms of us stocks, but most international stocks are in bear markets. Most against stocks and bonds of virtual flavors are outside. The us and bonds in the us are in bear market. But the S and P 500 still, I wouldn't say technically in a bear market, but once we are officially in a bear market and I can talk about what I look for to determine whether you're in gonna blow a bear market, you can simply buy inverse ETFs. So these ETFs did not exist, you know, in the early two thousands bear market, but they did exist in 2008, 2009.

So these are ETFs that go up by the amount that, uh, stocks go down. So there's an inverse S and P 500 ETF. The ticker's sh there's one for the NASDAQ 100, the ticker PSQ, you know, so, and there's also levered inverse ETFs. There's a S and P 501, the ticker's SDS. So in 2008, 2009, the, the S and P fell about 60%, but the SSH, the inverse rose about, uh, I think it was about 90% and the double inverse S and P 500 SDS rose about 180%. So you could have made enormous profits during that bear market. So if you can make profits, you know, great profits in a bull market and in a bear market, then you compound your returns significantly and earn much more wealth than a traditional buy and hold investor will.

Right? Well, the inverse ETFs are designed to for daily performance. You know, if the S and P goes down 1% during the day, you know, the inverse should go up 1%, the double inverse should go up 2%. So they are designed that way. But if you actually look over time, you know, years at a time, these particularly the, the, what the inverse ETFs for the large indices, such as the S and P 500 or the NASDAQ 100, those actually track the performance as pretty close to how you would hope them to track over years at a time. So it's somewhat of a myth that you can't invest in them for months at a time, or, you know, we're, the odds are, we're not gonna be in a bull market for, you know, five years, probably, hopefully you could have made a lot of money over six months, 12 months, 18 months in these funds. But yes, they, you know, as with anything, you know, the market has its ups and downs. It doesn't move in a straight line, either down or up. So, you know, we've had a big rally in stocks the last couple of weeks. And so the inverse ETS naturally sold off as you would expect them to. So in a bear market, I could tell you, you know, kind of what I looked for to identify a bear market, and then there are ways to trade within a bear market if you're interested.

Generally. I look for, I look at a lot of indicators to determine the trend of the overall market, advanced decline lines, new highs, and new lows, things like that. That gives me a broad picture, but for any given asset, if you just look at the, just a chart of the, let's say the S and P 500, just a chart of it. And I looked at this in the early two thousands and 2008, 2009, if I looked generally for criteria, define a bear market, I think, okay. Basically they're very simple. So if you have a price chart of the S and P 500, and they use moving averages, they use a 20 day moving average for kind of short term, a 60 day I use for longer term or medium term, and a 250 day I use for longer term. A lot of people use this use the 200.

It's very similar, but it gives you a little bit fewer head face. But generally what you see when a bear market starts is the price of the S and P 500 will fall below its 250 day moving average. It's long term moving average, and then next the 20 day will fall below it. And then lastly, the 60 day will fall below it. It's it's, you know, the more lagging indicator. So when you have the price the 20 day and the 60 day, all falling below the 250 day, that's usually about when the 250 day moving average starts to slope downward. And so when you have all of that, you have kind of confirmation of a down trend, a significant down trend. You haven't just dropped below the 250 day for a day or a week. You know, it's, it's more persistent trend. And generally when all those things are, are down trends, the 60 days below the 250 day, and the 250 day is soaping downward. You can call that officially a bear market. And I looked at this in two, in the last two bear markets. If you bought the inverse ETFs, then, and you held onto them the entire bear market, until all those conditions reversed the price rose above the 250 day, the 20 day rows above the 60 day rows above, and the 250 day slope turned positive. So you had a reverse of those indicators. If you had held those inverse ETFs or shorted the S and P 500, essentially during that time, you would've made about a 30% profit.

Right. And just a couple little points about that. So, first of all, if you had just done that in those last two bear markets, you would've made roughly 30% profit instead of losing 30%. So you, if you had started with a hundred dollars, you would've 130 instead of 70. And so that's, I think an 85%, you know, higher wealth essentially at the end of the day. So it has a huge impact on your wealth and your compounding of returns over times, even just making that, that 30% profit instead of losing 30%. And one thing about these indicators, they, you know, you can start to, you know, for example, in March, 2020, we had that very short crash, right? Where the S and P fell, you know, 30, 35% or so, it was very short. These indicators, it happened so quickly that they didn't really kick in, essentially until the crash was over more or less.

And so the bad thing is you wouldn't have really profited from that crash, but the good thing is you wouldn't have gotten in, you know, the crash was so short-lived, and it was over so quickly. You wouldn't have, have gotten whipsawed so much by the crash. So, so these indicators work well for kind of a longer grinding bear market. Like we had in the 2000 early two thousands in 2008, 2000, rather than a crash, which in a crash, if it's, you know, if the market's gonna crash and then bounce right back, you know, maybe it's not worth, worth messing with too much.

Exactly.

Absolutely. Now it's such a fantastic lesson. And you said, you said it exactly right. We had an inverted yield curve or flat yield curve that inverted in 2019 and every time as you know, since 1970 or so, every time we've had an inverted yield curve, you have a recession could have been, you know, potentially bear market. So even before COVID we had an inverted yield curve, which was suggesting we were gonna have a recession in 2020 with a likely big bear market. And then COVID came on top, you know, global depression essentially. I mean, it's the worst news, you know, some of the worst news we've seen in our lifetime. And if you just thought about that, logically like an economist or what have you, you know, you would've missed this entire rally. So that's why you, you have to, the number one most important thing is to focus on the charts and the technicals and investor sentiment.

Sure. Great. Thank you. So, as you know, we've had a big commodities bull market. As I mentioned since the, uh, the March 20, 20 low commodities have been outperforming stocks and commodities. And I can talk about this in a segment stocks. So the most expensive they've really ever been in history. And because of that, based on there's a valuation indicator and based on the historical performance, that valuation indicator, it suggests that stocks will likely be at least 50% lower 12 years from now,

In 12 years, based on this indicator, the stocks will likely be at least 50% lower assuming, uh, this indicator works as it has in the past. It's essentially the total stock market divided by GDP, which Warren buffet, you know, says it's his favorite valuation indicator for stocks. And there's an economist, John Hussman, he's a fund manager and, uh, economist, who's done great work on this and, uh, determined that you can predict 90% accuracy the returns over the next 12 years for the S and P 500 based on this indicator. And again, based on that, stocks will likely be at least 50% lower 12 years from now, which is shocking. But a lot of people don't remember that, you know, bear markets can last a long time. It took the S and P 525 years to recover to its 1929 highs. It took the NASDAQ 15 years to recover to its 2000 highs.

It took, uh, the Japanese stock market is still about 30% lower than it was in 1989. So 32 years later, so stocks can stay down for a long time. Now they don't stay down a straight line they're bull and bear market cycles along the way. But anyway, the point is we know bonds offer very low returns right now, you know, two and a half percent interest rate on, on the 10 year. Treasury is some of the lowest in history and after inflation, you know, it's a very negative, real return. So bonds do not offer attractive long-term returns. Stock market overall does not offer attractive long-term returns. It looks like they'll be pretty negative for a while, but commodities are actually very cheap relative to their history relative to GDP, relative to stocks, they look very cheap on an absolute basis. And they've been in a bull market.

The last couple of years, the fed has increased the money supply by 40%. We have all this liquidity going around and now we have, you know, we've had these bottlenecks related to COVID and now we have this Russia Ukraine war, as you know, Russia is a large provider of commodities. So, you know, the best stocks and ETFs right now that I've been recommending to our members are, you know, stocks like Halliburton, you know, major oil field services, company, Triton international, it's the world's largest lessor of freight containers. They're benefiting from supply chain bottlenecks and container shortages. Devon energy is an independent oil and gas company I recommended should have about 60% earnings throughout this year and about a 6% dividend yield. So there's a lot of, I think there's more room for commodities to co over the next, uh, over the coming years. And so commodity stocks are interesting. There's commodity ETFs like Invesco has a no K one ETF called, uh, ticker PD C there's a ProShares has a K one free oil ETF, O L I K fidelity has a ETF fidelity stocks for inflation do well when inflation's high. So there's, there's, uh, lot of interesting, I think commodity and inflation plays out there right now.

Right. Right. And I do think the, uh, the seventies are a very interesting time to look at and I have an article on my website about it, cuz most people, I was a kid in the seventies that, you know, most investors now don't remember very much about it, but the 73 to 75 bear market was the worst bear market since the great depression up to that time, S and P fell about 45%. And during that time again, stocks did went down 45%. Bonds did horribly cuz you had high inflation, but commodities, you know, oil and commodities did extremely well during that time. So, you know, that's a stagflationary period, which, uh, you know, particularly God forbid this, you know, war gets even worse or, you know, exacerbates then, you know, we could be in for a major stagflationary period in which case, uh, I think you can invest in generally commodity stocks, you know, commodity, ETFs, gold, other commodity ETFs.

And there also, you know, there may be some defensive stocks right now. There are some defensive stocks, which, you know, I don't think are impacted by the economy much. Um, there's some healthcare managed care companies. There's one, I like a lot called Molina healthcare, tickers, MOH. They do managed care for Medicare and Medicaid. So very little exposure, you know, to the economy and they should grow earnings about 30% this year. So there's some defensive names out there, but, but yeah, I think the place to be given what we see right now, it's in commodities. And then if we do again officially see all the signs of a bear market, then I think these inverse ETFs, you can make a lot of money on.

Yeah. No sense worrying. My only reason to mention, well it's again, there's about a 90% correlation with this metric. Again, it's essentially stock market cap to GDP. And I have, I just wrote an article on my website. People can look at all the details you can even look at at dividend yields, you know, historic lows, the Scher PE. So for example, the Scher PE, which you know, is the price of the S and P 500 divided by the average earnings per share of the S and P 500. It was at these levels at the tech bubble peak in early 2000. And so that was kinda the most expensive the stock market ever was at the tech bubble peak based on that measure. And nine years later was the 2009 bottom and stocks were down 55%, nine years later. So that's the kind of thing, you know, it sounds shocking to say 12 years you're down 50%, but from 2000, 2009, we were down 55%.

Again, the, the Japanese stock market, huge bubble in the 1980s, 20 years later in 2009, they were down about 80%. So, you know, these things can, gold was down 70% from 1980 to, to 2000. So things can go down a lot and, uh, stay down. But yes, you're exactly right. I mean, it's important. I think to know that, and the reason I mention it is for people who, you know, they've been told by wall street essentially to buy and hold forever and buy and hold for wall street. Advisors is kind of easy money for wall street advisors. They don't have to really do anything. They just put the money there and then they collect steady fees. They don't have to tell people, oh, we might be going to bear market. You should do that. You know, it's kind of easy money. So I think for people who've been, you know, it's been such an amazing bull market.

You know, the last, you know, since 2009, I think I just wanna kinda shake people outta their complacency and say, you know, you need to be prepared to a identify when a bear market starts and when it ends, cuz there will be, I think cyclical bull and bear markets the next 12 years, just like there usually are and learn how to profit from them. And the thing that most people think is, well, you know, a bear market, 2018, you know, it went down, but then it came back in a few years, you know, if you just buy and hold, it always comes back. Stocks always come back for the long run again. I just said, you know, you can go decades and I don't know how, you know, if you're 20 years old, maybe you can wait 25 years. I'm not 20 years old. No, right. In 25 years I need to make some money. So I think people just need to reminded, be reminded that stocks can go down a lot for a long period of time and they need to be able to be more active and look at the charts and profit when you have a nice bear market and also be able to profit when have a nice bull market and also be able to profit in a bear market.

Right. Exactly. Another example I'll give you is after the great depression or you know, great depression. So stocks, I think, you know, stock market fell about 90% in the early thirties. That was a low, you know, you could have, if you made money in that fair market, that's great. And then you could have start, you know, you could have played the subsequent bull markets that happened after that. But even, you know, I think 1941 or so stocks were still, I think about 50% lower than they were 1929. So they were, you know, down 90%, they ended it down 50%, but you could have made a nice profit during that bull market after the initial, uh, big decline. So again, there are bull and bear market cycles, but it's just important I think to not get complacent plea right now, you know, just assume that stocks always go up and they'll always be higher five years from now or 10 years from now. That just isn't the case historically. And it's, it doesn't look like the case given the valuations of the stock market right now.

Thank you very much, Kate. Thank you. Yeah. So my website is called bull and Bayer profits.com. Everything is completely free on the website. You could just sign up there with your, your email and you can access webinars, special reports. I write articles every week, all for free also for a limited time for the next six months or so, I'm providing four to 10 new stock and ETF recommendations every single month. So you give specific, actionable recommendations. I provide exit prices, uh, a target price and a trailing stop price to automate the exits. So I provide really everything in the service right now for free. In about six months, I will start with a paid newsletter that will have, you know, a lot of written content as well in addition to the recommendations. But for now you can check it out for free and see what I have to offer and hopefully learn a lot about bull and bear market cycles and how to profit from them.

Thank you very much, Kate. I really enjoyed it.