Sadly, once again, the rosy optimists got things wrong, very wrong. I have been silent a while but certainly this most recent purging of investor's wealth in most of the stock indices deserves some commentary, especially since another BEAR rally is surely around the corner. This is another long one and since by now you surely understand where I stand on things, this particular missive may be more catharsis for me than additional insight for you, but let's give it a try....

First, let's start with a math lesson. Back during our recent mini-bubble, the optimists were declaring that the Sept 11th attacks had ushered in a new bull market (irony of all ironies indeed). I believe the technical definition is a sustained advance of 20% or something like that. OK. Let's look at it another way. Your favorite stock index is at 1000. It plummets by 90% to 100. Let's be generous and say it "roars" back by doubling over the next three years to 200. Now, would you call that a new bull market? Who cares right? If you bought in near the highs, this new bull market barely makes a dent in your losses.

This same realization is hitting a lot of people who thought they could finally make up for their post-bubble losses with the economy recovering and a new bull market in the making. Interestingly, it seems that another large contingent of people have simply stayed away. Funds tucked and hidden in money markets is still at historical highs last I checked. Much larger than would be expected with interest rates so small and pitiful. As another sign of the times (for now anyway), I no longer hear the stock analysts and promoters drooling and crooning over all these trillions of dollars itching in the wings to take the market to ever more lofty heights. I even recall during the height of the post-tragedy buying listening to one of those CNBC knuckleheads proclaim that the market was a forward-looking mechanism and was convincingly declaring good times ahead, that ma and pa public was expressing their faith in the American economic system, and finally that you better hurry up and buy because his market isn't waiting for you and won't come down to give you lower prices. =yawn=! Could someone pinch me please?! I guess the market is looking forward to bad times now...

Ever since Enron broke, the public has been pummeled by a barrage of big bankruptcies and scandalous financial news that has made it painfully clear what was already well-known: corruption runs deep where big money is to be made, and the American dream machine ain't no exception! The greed during our bubble days was unprecedented and the rush to grab the money while it was almost being given away led to what in hindsight were perfectly predictable abuses of our financial systems and regulations. Heck, even CEOs of bankrupt or otherwise penniless companies are still making out with hundreds of millions in ill-gotten gains! Suddenly now, the SEC wants to get tough, and seemingly every day they appear to target a new company and boom goes the stock! How more discouraged can you get when you never know one morning whether your favorite holdings are gonna be next for the executioner's office? Couple this with geo-political intrigue, poor earnings results from many large companies, a growing trade deficit and federal deficit, rising oil prices, and an ominous peaking in the value of the dollar as the world slowly loses confidence in the attractiveness of continuing to underwrite or rapacious consumption of their goods, and you quickly determine that you would have to be partially insane to throw more money into this tinderbox of a market.

As I said the last time, at this point I would typical say "I told you so" or "run for your lives!" Oddly enough, while I find myself doing my traditional haranguing of the eternal stock optimists, I also feel compelled to send some words of encouragement - for whatever it's worth at this point! While the major indices, Nasdaq, Dow, and S&P 500 have had a hard time of it, especially the "Nazz", there have been numerous stocks, largely in areas such as retail, financial, consumer cyclicals, homebuilding, some industrial cyclicals, even GOLD, and various stocks of small and medium-sized companies that have indeed been tearing along in the midst of a roaring bull market. You can often see them in the list of the NYSE's leader percentage gainers for the day. There is a distinct dichotomy in the market hidden by the major numbers reported by the press. Your current state of mind depends on which side of the fence you have left your money!

I mention this dichotomy to remind you that in most every market there is opportunity (and not just to bet against stocks). If I were an eternal optimist I would be exhorting you to "buy, buy, buy" those stocks that keep hitting 52-week highs because the train is just speeding up not slowing down. Sorry...that train just may have left the station without you. Given the growing din of noise, hub-bub, and bubbling excitement about these stocks, the contrarian in me gets all antsy and nervous. Surely, by the time you catch up with the trend, the party will have ended with you holding the bag. Surely the trillions staying on the sidelines is testament to the increase in wisdom amongst the investing public.

However, if I am correct that a MILD recovery is playing out, and not the return to raging good times that the market has been betting on, and if I am correct that we could be in for a decade of small to negative returns, then the price you pay for your investments will be more important than ever. Valuation is back in fashion. You want to buy into the sharp sell-offs, not run. If you wait until all is fine and rosy again, you will find yourself buying near the top of another trading range. You will also be forced to analyze and understand your investments better before sinking in your hard-earned cash. And you will be forced to have the "patience of Job" to realize decent appreciation. Perhaps if you are a very good stock picker, you can do very well. This all means that if you are not up to the task, or if you are very conservative, the stock market is probably not gonna be a fun place for you for a while. Unfortunately, there are just not many other attractive places to invest in right now. Bonds are probably at their cyclical peaks (except high-yield bonds which have been GREAT: 8% returns are possible right now). Real estate is OK, but we all have heard the raging debate on whether we are now in a housing bubble. CDs are ugly with interest rates at historical lows (since interest rates can only go up from here, you do NOT want CDs with longer than 6-month maturities). And money markets will COST you money after adjusting for inflation.

Whew! That's a lot to worry about, and a lot to think about. If it is of any comfort, you should know that I am struggling to cope in this madness along with the rest of us! You have to step back and take the historical perspective that we have somehow managed to slug through these rough spots before and somehow we will do it again. It won't be easy, but, bubbles and mad bulls aside, investing was never easy....

Be careful out there!