Bill Bonner (The Daily Reckoning, UK):

We are high over the African veld… at least, we think it is called veld. That’s ‘field’ to you and us. And we’re so high above it we can’t see it anyway.

After a few days in Johannesburg, we’re on our way to Dakar. Why would Bill want to go to Dakar? We asked the same question. But Dakar is just a stopover on the way to Washington.

Meanwhile, there are things to be reckoned with.

When we left the ground, it appeared that we were finally getting the shakeout in gold that we’ve expected… and maybe the beginnings of a shakeout in stocks too.

(Whoa… we just landed in Dakar… got an internet signal. Seems gold is down another $22. The Dow, however, rose 51 points yesterday.)

On Friday, the London gold market saw the highest volume traded in history.

London gold expert, Dominic Frisby, sent this commentary:

“After peaking last Wednesday at about $1,220 an ounce, the price has fallen almost $100 in just four trading days. Friday’s capitulation – some $60 – was particularly ugly. It shows just how much speculative, hot money there is in the sector.

“So what now?

“In the week to last Wednesday 7 December, almost $300m of call options (options betting the market will rise) were traded in the largest gold exchange-traded fund (ETF), GLD.

“That is more than the entire call volume of the second and third quarters of this year – in just five trading days. On Wednesday alone, trading volume in GLD calls amounted to almost 50% of what the market traded in the entire second quarter.

“That is a sign of extreme speculative excess. It is not the time for short-term investors to buy. At such extremes, you have to ask: where are the next buyers going to come from?

“As we head into year end, there are a lot of fund managers who will want to lock in their profits for the year.

“I’m afraid that means they will sell their gold – and anything else they own that has done well – at the slightest hint of a turn in the markets, because they will want to secure their gains (and their bonuses) on what will have been an excellent year. That’s what we saw on Friday and why the market fell so hard, so fast.

“In the short term, this does not bode well for any market – except one. “It may be that we are finally seeing the end of the ‘Great Reflation Trade’, this astonishing rally out of the crash.”

Click here for the rest of Mr. Bonner’s article at The Daily Reckoning, UK Edition.

In classic contrarian style, some Wall Street pros are happy the bear is back.

No, they aren’t sadistic. It’s just that in the majority of bear markets going back to the 1950s, stocks, on average, rose soundly during the six and 12 months after the markets were first labeled as bears. That was particularly the case when the major gauges slipped more than 20% off their cyclical highs – the technical definition of a bear market.

As of Monday, all three major gauges are in or just above bear market territory, with the Nasdaq already having spent some time in the bear zone during the March lows, before recovering. And a bigger recovery could be in the works now.

If you listen to mainstream media sources like CNN you’d think that the bear market is over before it even began.

By contrast Bill Bonner sees more trouble ahead when consumer spending actually goes down,

Stock markets all over the world are getting whacked. They’re at a 5-month low, even beneath where they were when Bear Stearns went bust. Japanese, European and American stocks (as measured by the S&P) are all in bear market territory – all down at least 20% from their peaks.

Naturally, “some investors are beginning to scent a possible end to the slide.”

It was dumb money that was buying stocks at their all-time peaks. Not only in the United States, but everywhere. It is imbecilic money that buys now, in our opinion.

We are a long way from “capitulation territory.” When it comes, you will not see stocks selling at 15 times earnings. You’ll see them selling at 5 times earnings. And you won’t see the Dow at 14 times the price of gold. You’ll see it at 2, 3 or maybe 5 times the gold price.

Most importantly, when investors finally give up on stocks, you won’t find articles in the major press telling you that investors are “on alert” for the bottom. They will have lost interest – and their money – long before.

Despite all their woes, Americans have still barely begun to cut back on spending and begun to save in a major way. Sooner or later they will. And if the savings rate goes back to where it was in the early ’90s – at nearly 8% of personal income – it will take about $800 billion out of consumer spending. You can imagine what that will do to retailers…to the auto and aviation industries…and to Wall Street.

Stay clear of stocks, dear reader. Stick with cash and gold.

Steve Sjuggerud is no cheerleader but he has a less gloomy look at the bear. He says,

Commodities are up by triple digits since the end of 1999, and stocks are down in that time. The scary thought is… if the pattern holds, we could see stocks underperform until as late as 2016.

In my newsletter True Wealth, we wait for opportunity… We buy things that are cheap, hated, and in the start of an uptrend.

I don’t think we’ll have to wait until 2016… but we haven’t seen the uptrends yet. It’s an understatement to say it’s an ugly market out there. We’re simply doing our best to avoid catching falling knives.

It’s best to wait for the falling knife to hit the ground and come to a stop before carefully picking it up. By waiting for the uptrend, we might miss the first 20%-25% of a move… but it’s completely the right way to go now. We can’t know where the bottom is.

Right now, I’m seeing more cheap and hated opportunities than I ever have in my career. That’s what I’m excited about. And that’s the positive thing about bear markets… They create value.

If you can’t bear to stay on the sidelines, Keith Fitz-Gerald offers these five tips for profiting in a bear market.

Now that we’re in the midst of a new bear market, here are the five secrets that will pave the way to bear-market profits:

1. Don’t Try to Catch a Falling Knife: The first bad news is never the last, as so many investors found out when the Internet bubble imploded in 2000, quickly eradicating $14 trillion of wealth. If the fundamentals don’t match up with the stock’s price, don’t buy.
2. Don’t Overpay: One of the biggest miscues bear-market investors make is in concluding that certain stocks are a bargain simply because they’ve traded down to historic lows. It’s better to consider “tangible book value.” The reason: Tangible book value represents what a shareholder can actually expect to receive if a company turns turtle; it’s a good measure of what the firm’s real assets are worth. So, at a time when earnings are decelerating – or have vanished completely – buying companies that are trading below tangible book value can provide an extra measure of downside protection, especially when you’re talking about a company that’s perfectly positioned to capitalize on powerful global trends.
3. Look For Pricing Power: When the going gets tough, the tough… stop buying. At least, they stop buying the stuff they want, and shift, instead, to the stuff they need. This has a major ripple effect in the economy. Many businesses are forced to go on the offensive to keep the customers they have, or to “win” new ones – at a time when consumers are loathe to spend. This suggests that companies that are able to continue, or even ramp up, their advertising spending make the best bets. Especially alluring are companies that can keep their customers – and even raise prices – in the face of a bull market.
4. Watch for the “New Research Coverage Initiated” Signal: Although Wall Street hates to admit it, analyst ratings and recommendations aren’t intended for us individual investors. At least, that’s been the case historically. Investment banks actually use their company “coverage” to generate investment-banking deals and to cozy up to the senior executives of the firms that are being “analyzed.” Since analysts often have access to insiders long before they publish their “reports,” new coverage can signal positive future growth or expansion plans.
5. Drill for Dividends: Many investors focus on so-called “growth stocks” in their rush for riches, when study after study demonstrates that dividend-yielding stocks can offer as much as a 25-1 advantage. One study by Ned Davis Research is particularly telling, noting that dividend-paying stocks provided returns of more than 10% a year from 1972 to 2005. Non-dividend paying stocks, in contrast, posted gains of just 4.1%. Given that this research study started at the worst possible time in the past 40 years – just prior to the “bear market” of 1973-1974, which dragged on for 21 months and caused shares to lose 48.2% of their value – these numbers are especially noteworthy.

Follow this playbook, and you won’t have to remain a spectator during lousy markets. You’ll be out on the playing field – and you’ll beat the bear.