In the Eye of the Hurricane post I listed 2 conditions I would need to believe in the recovery. Neither has occurred.

In technical analysis, we appear to be creating the A of an MA pattern that started forming in the mid 90s. You don’t want to know the target…

http://www.youtube.com/watch?v=Y6FzvWjQ_A0

http://sites.google.com/site/sp500pejuly2009/

Should have been: Another popular method is to buy when PEs are low (below 12)and sell when they are high (above 25).

Note: I used greater than and less than signs in the parenthesis and forgot that it would read it as html …Doh!

- If the point was that you should never buy equities, then where should you put your money?

- If the point was to support a “buy and hold” methodology, then “sold to you!”

Seriously though, you gotta put your money somewhere. The goal should be to reduce downside risk, which is what MAS’s (Denninger’s) method does.

Another popular method is to buy when PEs are low (25). This has a similar positive effect on an equity portfolio.

Finally, the largest daily gains are allways in bear markets (in bear rally’s). Not a good time to be “in,” since prices eventually roll over and drop even further.

The Simple Rule is not about becoming a multi-billionaire. It is about minimizing exposure during common bear market conditions by hiding in fixed income. When your financial planner is wrong, you lose money. When this rule is wrong, you just don’t maximize your potential gain.

This is a defensive strategy for those that don’t understand or don’t care to understand the market.

Ed Easterling’s research discusses probabilities of expected returns based off history. Denninger’s rule is a simplified application of those statistics.

There is sound reason for this. There are a handful of days over a decade or more where the market moves up so much, that being out of it causes you to miss all the gains and reap all the losses. That’s a basic investing rule. Of course, if we knew when those days were, we’d all get in the day before and be multi-billionaires.

As for this theory, it’s a nice theory and all but one day, like all theories, it will stop working due to some paradigm shift we cannot fathom. If you think you are smart and plugged in enough, maybe you’ll even see it coming, but 99% of the rest of us won’t. At that point, we will lose a lot of money (either in real losses or because we were out of the market during a large upswing). We will then find a new theory but that money is gone.

Simply put, the market is a crap shoot where you’re trying to bet with the house. Even the house can lose sometimes. If you an stay in it for 50 years and dollar cost average, you’ll probably do OK but there is no guarantee. But yeah, 20 years is too short to get the odds all the way on your side. You can time it just wrong and get fleeced. That’s the best argument against privatizing SS that can be made.

Kidding, of course…