MARKET UPDATE 2009-08-21
Contributed by Charles Guest, SinoCentury Guest Commentator

It has been over six months since I have bought or sold stocks.  I was buying during the decline last year and early this year and have ridden the rally, but over the last two days I have been selling.  I am not selling everything, but I am raising cash levels to take advantage of opportunities which may arise over the next year. Let’s face it--neither I nor anyone else really knows where the market is going to go.  So why am I selling now?  Here are the reasons:

1.  The secular bear market that began in 2000 is not over. Price to earnings ratios (based on a 10-year moving average of earnings) never dropped below 20. During the secular bear markets in the 30's and 70's, the S&P 500 index’s P/E ration fell all the way below 7.

2.  The debt bubble that precipitated this secular bear market is still with us and it is even growing larger. Our total national debt (including government, corporate and private debt) is now over 370% of GDP. In the 1930's this measure peaked at 270% of GDP. Now private debt is being moved to the government's balance sheet to some extent. This debt has to be liquidated thru default, repayment, inflation, or a combination of all three. This process will take years.

3.  The market took 34 months to reach a bottom on July 8, 1932. The current cyclical bear market which began in October 2007 is only 22 months old.

4.  China, which is the world's main growth engine, is close to entering bear market territory with the Shanghai Composite Index experiencing a decline of nearly 20% since July's top. China led the U.S. down by a two-month lead last fall and then again led the U.S. market up with a two-month lead this spring.

5.  The BKX bank index is having trouble getting above the 45 level from which it dropped in January to a low of 17.75 in March. The financials could lead the overall market down once again, since they still have the same old problems.

6.  Insider selling this July reached the highest level since the market top in October 2007. These are the people in the know as to their companies' prospects.

7.  Bullishness of market timing newsletters is at its highest level since January when the Dow was last above 9000. This is a contrarian indicator.

8.   The market has had a good run since the March 6 low of over 53%. Why not take some profit and look for another opportunity down the road?

9. Last but not least, we are now moving into September and October, a part of the year that historically has seen many instances of bad things happening in the stock market.

So what did I sell? I sold 25% of my China holding (FXI) because China has had some of the biggest gains. I sold my last remaining bank holdings (KBE and WFC) which also had some of the biggest gains.  I sold half of my rather small holding of SPY since the S&P 500 companies derive much of their profits in China. I did not trim any of my holdings in Japan, agricultural commodities, oil and gas services, technology, pharmaceuticals or gold and gold mining since I think these have the greatest potential for gain over the long haul. I may be wrong, but that's my story and I'm stickin' to it.