I’ve been too busy to post anything for awhile but I want to at least briefly address the question above.

I don’t tend to over-react to the market action of any single week or so. Over the years, I’ve seen many upswings follow panics and many plunges be replaced by steady gains. I was lucky enough to call the current cyclical bull market that began in March of 2009 for what it was 3 days before the actual low (and was roundly heckled by those too deeply immersed in the day-to-day heartbreak from October 2007 to March 2009. See article here.

We must remember that no market goes straight up or straight down. Within this current up-cycle, it is easy to forget that the S&P 500 (SPY) had a drop of 16% from April 23 till July 2, 2010 that had the permabears claiming we were headed for Doomsday once again.

Or that from April 29, 2011 until October 3, 2011, the S&P fell 19.2%. Was T.S. Eliot right? Is April really the cruelest month?

…sometimes.

But April isn’t alone. From May 2 to August 25, 2015 the S&P fell another 12.4%. 

By comparison, this current pullback might seem like a piker. And it may yet prove to be. But this time feels different to me. In particular, it comes too closely on the heels of the previous decline. I mean, really, we had a rally of just 9 weeks before the US markets came tumbling down again?

Add to this that the cycle since 2009 has run nearly a full 7 years. Were these the fat years? Are lean ones ahead? (Some relief here: unlike the cycle related in Genesis 41, bear markets tend to be more volatile but also tend to last only half as long as bull markets.) No matter how you slice it, we are either very close to or beyond the expiration date of this bottle of milk.

Then, of course, there are all the more transitory reports out there that primarily confuse and confound clear thinking, giving talking heads on CNBC something to do between commercials: the full slate of geopolitical crises like China claiming uninhabited islands closer to Japan, Taiwan, The Philippines, Vietnam, Malaysia and Brunei than to China. Or the Chinese government lying about its numbers or skimming the rewards of its citizens’ labors for the top Party officials. Or OPEC. Or the tensions between Saudi Arabia and Iran, Russia’s bald-faced invasion of Ukraine while the US government pouted and appealed to the UN , the nuclear gift to Iran destined to bankrupt more American energy companies and send tens of thousands of additional workers onto the unemployment rolls, etc., etc.

These all pass, but a double dip within weeks of each other, the weight of a very old bull, and the likelihood of poor earnings comparisons add gravity to the mix and make it more likely we are closer to the beginning of a bear cycle.

If I believe that, why not sell everything last week or, for that matter, this coming week? Because “usually” markets don’t go up or down in a straight line. Permabulls will be encouraged by low prices and will buy the bargains – and make no mistake, based upon the last 7 years, there are some fine bargains out there. I just don’t believe any rally will have the legs to launch a new bull.

That’s why we have remained calm in this storm and instead are looking for a bit of sunshine to allow us to sell our more market-sensitive holdings and move into more cash and income holdings. What are we most likely to keep? Healthcare, especially managed care firms and the best-financed biotechs; insurers and regional banks; and all our long/short positions and our current short ETFs and funds, like GRZZX, SH, SDS, HDGE, TWM, EUM, and CHAD that have only been hedges until now. See previous articles for other examples. We will also add some developed markets sovereign debt; with Europe, Japan, Taiwan, Korea and others looking to reduce rates, their bonds are likely to appreciate while providing us with good income. We will again embrace the preferred shares of some of our favorite companies; again, I’ve mentioned these in previous articles, no need to extol their virtues yet again. And as the opportunity presents, I think we’ll add water utilities once again to our portfolios.

Does this sound too conservative for some? I’m sure it will be. Yet I project that the total return, a combination of the dividends and interest we will receive as well as some capital gains and merger and acquisition activity that always takes place when the price is right, will provide us with a 7-10% return this year. One might scoff at that in a rip-roaring bull market but if the market ultimately ends this cycle down 20-30% or more, those of us returning “just” 7-10% will be there with our portfolios intact to pick up the gold amidst the rubble.