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Why Bear Markets Are Tough

January 24, 2022

The number of traders who beat the indices soundly over both Bull and Bear markets are very few in number.


The Bear's broken clock is finally right. Those clock hands stuck at midnight--well, it's finally midnight.

Bear markets are tough, not just for Bulls but for Bears, too. Bear markets are treacherous because they are famously punctuated with rip-your-face-off rallies (RYFOR) that shred Bears' lavish profits and handsomely reward buy-the-dip Bulls.

Then the markets suddenly roll over to new lows and the anguished cries of margin-call-impaled Bulls rises eerily from the depths. Newly enriched Bears--the few who weren't thrown off the Bear Bus by the repeated RYFORs--rejoice, only to be ejected from the Happy Seat by the next rip-your-face-off counter-rally.

Those playing both sides are wrung out by the churn, and while a few make fortunes, the majority are whipsawed off the Bear Bus and the Bull Bus by the volatility and the soul-crushing anxiety of being wrong yet again.

Bear markets excel at sucking in Bulls at the peaks and Bears at the lows. When the move you've been praying for finally manifests, the temptation to go all in and reap the gains for being right is irresistible.

Right when greed triumphs, the market reverses and fear rushes in to crush the euphoria. Bears may know they're right over the long term, but it's dishearteningly difficult to stay the course as profits vanish in rallies and the really big crash that mints fortunes remains maddenly elusive.

Bulls see every support level and bit of good news as the much-anticipated turning point where the bad news and the decline finally end. But the turning point is just as elusive as the penultimate capitulation crash. Everyone wants a clear signal that the Bear market is over and the moment to buy, buy, buy is finally at hand.

But Bear markets aren't quite so generous. The Bear is generous with false signals, false bottoms and false rallies, and remarkably stingy with the-real-deal, this-is-it capitulations.

All the confidence gained in long market melt-ups where buy-the-dip paid off 100% of the time is slowly eroded by Bear markets. Buy the dip works for a few hours or a few days, but only the nimble reap the gains. Those playing with leverage find the gains from 10 successful trades are erased by one trade that got away.

The Bear loves to toy with hope--hope for a turning point, for vindication, for capitulation and for life-changing profits. The Bear market loves teasing not just the vulnerable roller-coaster-riding emotional traders but also the pros and even the algo-trading machines.

The teeming hordes who beat the indices in the Bull market are reduced to a handful of stragglers in the waning days of a Bear Market. Napoleon's decimated, starving remnants of a once-great army hobbling out of Russia come to mind.

The number of traders who beat the indices soundly over both Bull and Bear markets are very few in number. Bull markets are easy, Bear markets are hard. They require an entirely different experiential skillset than buy-the-dip Bull markets.

Looking back with the luxury of hindsight, Bear markets look like Paradise for the active trader: look how much moola could have been reaped by buying low and selliing high, again and again and again.

Easier said than done, as my chart of the Anatomy of a Bear Market illustrates. What's easy is being whipsawed and thrown off the bus.

That grizzled old wreck of a trader who mumbles incoherently about the 70s, 1987, 2002 and 2008? Listen to the ramblings, and ponder the runes and wanderings of the shattered mind. Therein lie the secrets to emerging not as a shell-shocked survivor but as the rare victor.




My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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Recent Videos/Podcasts:

Charles Hugh Smith: Move Out Of The Unraveling City BEFORE Economic Collapse (1:02 hr)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



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My new book is now available at a 10% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States ($9.95 Kindle ebook, $22.50 print)


What is the greatest threat facing the United States? The conventional answer is geopolitical rivals (China and Russia). But what if the greatest threat to national security isn't geopolitical but the nation breaking apart? What if the greatest threat is the failure of the domestic status quo?

What if growth at any cost is unraveling as abundance shrivels into scarcity?

All nations, including the United States, face systemic crises that are reinforcing each other at an explosive point in history. The threats to the republic are unprecedented, but the status quo is incapable of understanding that conventional responses are an accelerant of collapse: the status quo is now the problem rather than the solution.

These novel crises demand an entirely new Grand Strategy that recognizes the greatest threats are domestic. The emergence of solutions is not pre-ordained; the collapse of the state is also a possibility, though far from an ideal one.

The global crisis offers an opportunity to redraw America’s Grand Strategy from the ground up. Should we fail to make full use of this opportunity, the United States will fail, along with all the other nation-states that are incapable of redefining the problems so that new solutions become possible.

This revolutionary Grand Strategy will be the deciding factor between nation-states that fail and the few (if any) that will not just survive but actually thrive.

Read Chapter One for free (PDF).         Read the Introduction

Podcast discussing the book: A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)



Recent entries:

Why Bear Markets Are Tough January 24, 2022

The Cult of Speculation Is a Cult of Doom January 21, 2022

Choose One, But Only One: Defend the Billionaire's Bubble or the U.S. Dollar and Empire January 19, 2022

Politics Is Dead, Here's What Killed It January 17, 2022

Should You Move While You Can, Or When You Must? January 14, 2022

The Real Revolution Is Underway But Nobody Recognizes It January 12, 2022

The Real Threat to Democracy is Corrupting Wealth Inequality January 10, 2022

Why Don't We Cut Out the Middleman and Just Elect Pfizer and Merck? January 7, 2022

The Economy / Market Look "Healthy" Until They Have a Seizure and Collapse January 5, 2022

What Will Surprise Us in 2022 January 3, 2022

2022: The Year of Breakdown January 1, 2022


December 2021 entries        

2021 archives         Archives 2005-2021







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Extra-Special Bonus Aphorisms:

"There is no security on this earth; there is only opportunity."
(Douglas MacArthur)

"We are what we repeatedly do." (Aristotle)

"Do the thing and you shall have the power." (Ralph Waldo Emerson)

"Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius and a lot of courage to move in the opposite direction." (E.F. Schumacher, via Tom R.)

"He who will not risk cannot win." (John Paul Jones)

"When we drink coffee, ideas march in like the army." (Honore de Balzac)

"Progress is not possible without deviation." (Frank Zappa, via Richard Metzger)

"Victory favors those who take pains." (amat victoria curam)

"The man who has a garden and a library has everything." (Cicero, via Lee Bentley)

"A healthy homecooked family meal and a home garden are revolutionary acts." (CHS)

"Do you know what amazes me more than anything else? The impotence of force to organize anything." (Napoleon Bonaparte)

"The way of the Tao is reversal" Or "Reversal is the movement of Tao." (Lao Tzu)

"Chance favours the prepared mind." (Louis Pasteur)

"Success consists of going from failure to failure without loss of enthusiasm." (Winston Churchill)

"Where there is ruin, there is hope for treasures." (Rumi)

"The realm of gratitude is boundless." (CHS, 11/25/15)

"History doesn't have a reverse gear." (CHS, 12/22/15)

Smith's Law of Conservation of Risk: Every sustained action has more than one consequence. Some consequences will appear positive for a time before revealing their destructive nature. Some consequences will be intended, some will not. Some will be foreseeable, some will not. Some will be controllable, some will not. Those that are unforeseen and uncontrollable will trigger waves of other unforeseen and uncontrollable consequences. (July 8, 2014)(thanks to Lew G. for retitling the idea.)

Smith's Neofeudalism Principle #1: If the citizenry cannot replace a kleptocratic authoritarian government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only.

The Smith Corollary to Metcalfe's Law (The Network Effect): the value of the network is created not just by the number of connected devices/users but by the value of the information and knowledge shared by users in sub-networks and in the entire network. (CHS, 4/6/16)

My Credo of Liberation: I no longer care if the power centers of our society--the distant, fortified castles of our financial feudal system--are changed by my actions, for I am liberated by the act of resistance. I am no longer complicit in perpetuating fraudulent feudalism and the pathology of concentrated power. I no longer covet signifiers of membership in the Upper Caste that serves the plutocracy. I am liberated from self-destructive consumerist-State financialization and the delusion that debt servitude and obedience to sociopathological Elites serve my self-interests. (Thank you, Klaus-Peter L., for reminding me)

"We've become a culture of excuses rather than solutions: solutions always require sustained effort and discipline." (CHS 4/9/16)

"Fraud as a way of life caters an extravagant banquet of consequences." (CHS 4/14/16)

"Creativity = problem solving = value creation." (CHS 6/4/16)

"Truth is powerful because it is the core dynamic of solving problems." (CHS 7/21/17)

"We live in a system of human emotions that masquerades as a science (economics)." (CHS 1/1/18)

"Always remember, your focus determines your reality." (George Lucas)

"Diversity is for poor people. Sameness is for the successful." (GFB)

"When power dissipates suddenly, it dissipates completely." (CHS 7/14/19)

"Disobedience is the true foundation of liberty. The obedient must be slaves." (Henry David Thoreau)

"Markets cannot price in the value of non-monetized natural assets such as diverse ecosystems." (CHS 7/14/19)

"Magical thinking isn't optimism, it is folly." CHS 1/3/22)

"Tune in (to degrowth), drop out (of hyper-consumerism and debt-serfdom) and turn on (relocalizing capital and agency)." (CHS 1/5/22)

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