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Originally Posted by quiet investor
NewMoney,
I think that it is very hard to try and time the cyclical moves in the economy. However, I am wrestling with this question also. I feel that
a cyclical bear market would tend to pull down even undervalued stocks because some people would have to cover margin calls on their other over-valued stocks. I'm thinking that if, and that's a big "if", one can call the general area of a cyclical bear market top in the overall market then one might hop out for 3 months or so and enter back in at a better price. There are tax implications to consider also. You can also consider buying puts on an index such as SPY to hedge. If you don't buy on margin it really shouldn't matter at all to ride out a cyclical bear market if you are holding for value and your time horizon is at least 3 years, preferrably 5. I do think that most cyclical bear markets occur because the Fed decides to slow down the economy because of inflation concerns and changes monetary policy towards tightening. That last string of Fed rate hikes was just to normalize rates not to slow an economy growing above a non-inflationary rate. A recession occuring outside of a Fed tightening is unlikely in my humble opinion. I'm not an economist so I hope you take my words with a grain of salt. I would definately ask NPG for his thoughts. They are quite sound.
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QuietInvestor,
Great comments. I'm of the opinion we are in a recession now and that it will be getting much worse. About 2 years ago I started to sense an impending recession and at the time I did not know anything about the economy or stocks.
One thing about a recession is that the FEDs can't control whether it happens or not. The Feds only control short term interest rates. Interest rates in other Countries can force our long-term rates to have to go up or down. The FED can perhaps put off a recession by a quarter or two by lowering rates but they can't stop it. A recession is necessary and good. A recession is a correction for an economy that was too strong for too long with too many excesses. Both Greenspan and Bernanke think dropping rates and printing money is the solution to our problems. The reality is it only makes the recession worse when it hits. Not only that, but by devaluing the dollar it means foreigners don't want to own the dollar.
Just wait until the Suadis and other Countries uncouple from the dollar and PEG off the Euro. Talk about it hitting the fan.