Beware The Secular Bear
The comments below are an edited and abridged synopsis of an article by Michael Ballanger
The NASDAQ was taken to the woodshed last week, creating havoc in many of the inflation and economically sensitive sectors, including cyclicals and precious metals. It went out for the week at a year-to-date loss of 21.16% and is now officially in a bear market. Unseen is the underlying damage in the bulk of small-cap issues where drawdowns of up to 70% are not uncommon.
A bear market loses in excess of 20% over any given time frame, but there are two completely different types: The cyclical bear that lasts for months and is part of normal market volatility, and the secular bear that can last for decades and is characterized by sharp, violent reflex rallies followed by persistent declines.
There was a Fed-orchestrated secular bull market coming out of the Great Financial Crisis of 2008, while gold has suffered. Being a market deemed integral to full employment (one of two Fed mandates), stocks were handed countless lifelines during the last secular bull while gold was forced to claw its way to the current cyclical bull status minus anything resembling central bank assistance.
Gold and silver are now in long-term secular bull markets, within which there have been cyclical bears dismissed as corrections. They have been frustrating markets; they haven’t responded appropriately to unprecedented quantities of credit creation/stimulus. The Fed’s policies (trillion-dollar purchases of bank-owned securities) did not result in soaring CPI, but once the government’s fiscal stimulus came into play, inflation took hold. It is amazing how undemocratic the banks can be when doling out Fed money and the reason is simple: The Fed was created by the banks, for the banks, to protect the banks, and they did so by hoarding the Fed stimulus, only allocating it to those who are in ‘the club.’