The Current Bear Market: Death By a Thousand Cuts

6/26 - "...there is ample current proof in the securities markets that we are living in interesting times. It’s simply nasty out there — or at least it feels that way...Commodities are up, REITs are up but rolling over, and everything else (stocks and bonds) is down."

"That made us think about advice from Warren Buffet for difficult times. Here are some of his comments that may be relevant as investors watch wilting portfolios:"

'Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

Our favorite holding period is forever.'

'The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’

6/28 - "CNN Money is reporting State, city layoffs: 45,000 and counting...The effect of those layoffs will far outweigh any benefit of the economic stimulus package, much of which was already spent. We must use the word benefit loosely because government giving away money it does not have never produces any economic benefit...Bloomberg is reporting Financial Firms May Make Deeper Cuts, Eliminate 175,000 Jobs."

"This is the backside of Peak Credit.

None of the financial engineering jobs that fueled this credit boom will ever be needed again. SIVs, Conduits, Toggle Bonds, Covenant Lite loans are all dead for years, more likely decades to come. Add to that liar loans, Pay Option Arms, insane leverage, and numerous other ridiculous lending arrangements. And if those things are not coming back, we do not need Wall Street shills to securitize that garbage and pitch it to unsuspecting suckers."

"Unemployment is poised to soar. Few are prepared for it."

7/2 - "U.S. Federal Reserve Chairman Ben S. Bernanke ignored the warnings of most economists last week, and kept the benchmark Federal Funds rate at 2%, far below the actual rate of inflation.

As a result of this non-move, investors can probably look forward to having the global commodities boom continue for at least a while longer."

"The reason for this intense advance in commodity prices is that the Fed and its European counterpart have been pumping money into their respective economies to prevent the collapse of several major banks...In the key emerging markets, the money supply has been rising even faster - 19% in China over the past year, and 21% in India. Not surprisingly, those countries’ inflation rates are taking off, with India into double digits and China quickly getting there."

"...even if the (U.S.) inflation rate is truly only 4%, the Fed’s monetary policy is dangerously inflationary; if it is actually 7%, giving a real Fed Funds interest rate of minus 5%, then prices can be expected to take off like a rocket - as they are already in the commodities market...It’s highly unlikely that (Bernanke will) raise interest rates before Aug. 5, which is when the Fed next meets...Thus, for the next several weeks, it’s highly likely that the commodities “bubble” - which is clearly what this has become - will grow in both size and scope."

"Investing in the late stages of a bubble is highly speculative. Nevertheless, I reiterate my prediction of a few months ago that gold will reach $1,500 an ounce...I would consider SPDR Gold Trust (formerly StreetTracks Gold Trust) shares (GLD) about the most efficient way of getting a pure gold play. As an alternative, you might consider a silver investment: The metal is currently trading at less than 15% of its 1980 high, the equivalent of $130 per ounce. If that’s a move you like, the iShares Silver Trust ETF (SLV) seems the best way to play silver directly."