SUMMARY

Most of us are too old to cry, but it also hurts too much to laugh. The global equities are in a bear market.

The conventional definition of a bear market is a decline of 20% from the high (which in this case we define as the 1-year high).

Virtually every significant country equity index is in, or nearly in , a 20% or greater decline from its high.

After a crushing day with price declines through the after-market period of 7.44% for the S&P500 large-cap stocks, 9.98% for the Russell 2000 small-caps, 9.42% in emerging markets, and 8.97% in non-US developed markets; the futures markets are down substantially from there. Tomorrow could be another damaging day.

Within the US, consumer staples (e.g. soap and cereal) and utilities are holding up the best, but virtually everything in the corporate equity category is down.

The US debt legislation, European solvency crisis, and China growth slowdown and banking stress are high suspect culprits. Corporations are doing well fundamentally up to this point, but governments are not doing so well.

Markets have gone from orderly decline to disorderly panic meltdown. A rally is a distinct possibility, but a sustained rally is unlikely without further downside testing.

Fortunately, we have been eliminating equity positions for weeks and months, now holding cash allocations in the 65% to 75% range; and gold in the 10% range. As a result, we have not felt the full brunt of the panic sell-off, although we have not avoided losses altogether, because positions were eliminated as declines became apparent in individual securities.

It's time now to begin thinking about the shopping list for re-entry, and the market conditions that would make re-entry appropriate. More about that in a subsequent letter.

Tonight, let's simply review the charts to establish in a definitive way that the bear has us in a hug.

Global Equities Bear Market Has Us In a Hug