Out of pure principle, I do believe that we are in a secular bear market.  The markets are extremely vulnerable to being subjected to another heavy round of deflationary pressures.  It’s not so much a question of “if,” rather “when”?  The government is trying to do the right thing; they were a bit too short-sighted.  A little bit of “too little too late” and a lot of bit of “non sustainable” fixes.  The government to a fault exercised a bunch of one trick ponies, such as the cash for clunkers series and tax breaks.  At some point, this runs out; yet, the problems remain.  When it does, it will get ugly; it will be extremely visceral.  It will be some sort of headline / newsworthy, next round of staggering collapses and changes.  Or not.  Maybe nature has another journey in store for us.  Perhaps the energy markets will be driven into the stratosphere and before Spring “peak oil” will be on everyone’s mind.  But, tonight, plainly, I’m biased towards the former.  So, what do I look for between now and the next turn?

A few ideas as to where the candy might be:

#1) How about the leading indicators? – Prince Albert’s idea of fading the Leading Indicators in a bear market seems pretty straightforward.

#2) Keep an Eye on the News – wait for a headline to hit your local news declaring a solid recovery on the front page.  (You might be waiting for a long time.)  (NOTE: Obama’s press announcement declaring recovery does not count as a substitute.  He has good advisors that let him know he will may only have a one or two chances in his career to make such a claim, he shouldn’t squander them.) (Over-confidence)

#3) Bear Capitulation – watch and wait for when your boldest “short” friend throws in the towel.

#4) Private Sector Loan Demand – Fade it.  When it returns to healthy levels of activity, it will unleash the next round of beating.  Basic logic is that businesses and governments sacrifice and struggle to get cash to flow to businesses again.  The first signs that they’ve achieved their goal causes them to stop attending to the necessary measures to fix the problem and to go focus on other problems that are hitting.  This loss of attention induces a relapse.

#5) Again… Keep an eye on the news for crisis: If you see major calamity hit again.  Imagine the USPS filing for bankruptcy.  Big.  Visceral. 

#6) Probably worth fading a sizable housing recovery, as all things do indeed occur in waves of one form or another.

Alright, just a few ideas to get your juices flowing.  Happy Halloween!