There comes a point in every major-market advance where one has to decide whether or not the best the market has to offer is in the past, and it’s now time to get out.  Of course one may be wrong in their timing of a market top. There is always the possibility that market returns for the next few years will be similar to those of the past few years, maybe even better; but then again maybe not.

It’s a fool’s errand attempting to sell at the absolute top, when selling within 10% of the top is about as good as anyone can do in the market.  At the close of this week, with the Dow Jones BEV chart below ending the week at 11.58% from its last all-time high of January 26th, that sounds like wise counsel.

There’s talk of how President Trump is (or will be) responsible for the current market decline with his tariffs on foreign imports to the United States.  In most cases these tariffs are only a reaction by the President to tariffs these countries have imposed on the United States for decades. He ran for office promising to renegotiate past trade treaties like NAFTA, which is exactly what he is doing with these tariffs.  After decades of Bushes, Clinton and Obama, I’m glad we finally have a president who is finally putting America first.

But that’s beside the point I’m making now, which is there is always bad news in the market.  Usually bad news results in only a transitory decline in the market. That is unless the market is at a top; in which case the bad news is only a reason for “market experts” to banter about as the proximate cause in the market decline.  But that’s nonsense, as the real reason for the bear market is that after years, or in our case decades of monetary inflation bloating market valuations, Mr. Bear is coming back to clean up the mess left behind by Wall Street and the Federal Reserve.

And there is a lot of garbage for Mr. Bear to clean up too.  Dividends for the Dow Jones (Blue Plot below) have been below 3% since the early 1990’s. Bond yields (Red Plot) have declined to ridiculous levels since the 2007-09 credit crisis.  

In the coming bear market we’re going to see plenty of bad news. But the real, if untold story is how since August 1971 the “policy makers” have inflated asset valuations far above where natural market forces would have taken them.  Now Mr. Bear is going to correct this “policy-driven” anomaly by driving dividend and bond yields up to double digits before the next bear market concludes. Of course, this will result in deflating market values well below 50% from their market tops, resulting in the failure of many financial institutions “market experts” today believe are rock solid.

Assuming I’m correct, it will be some time before this bear-market reality becomes universally accepted, and then only after the pain inflicted on people by Mr. Bear forces them to abandon all hope of further capital gains  Ultimately this bear market will create a historic buying opportunity not seen since July 1932, the bottom of the Great Depression bear market.

Do you want to read bad news about the economy and marketplace?  Go read Barron’s July 11, 1932 issue where the absolute bottom of the Great Depression Bear market was recorded. “Market experts” provided more reasons to go ahead and end it all than to buy stocks in that issue. Noone reading Barron’s in July 1932 could have expected how in the next twelve months the Dow Jones would see its best year ever, advancing over 150%.

Here’s the Dow Jones with its 52Wk High and Low lines. For the first time since the summer of 2016 the Blue Dow Jones plot has separated from its Green 52Wk High line. Seeing the Dow Jones lying atop its 52Wk High line for a year and a half is something not often seen in the market; another indication of the extreme valuations currently held in the stock market.