"In a world in which most investors appear interested in figuring out how to make money every second and chase the idea du jour, there's also something validating about the message that it's okay to do nothing and wait for opportunities to present themselves or to pay off. That's lonely and contrary a lot of the time, but reminding yourself that that's what it takes is quite helpful." --Seth A. Klarman

CALDRON BUBBLE (January 17, 2023): We are in the second year of the collapse of the "everything bubble." Unless you are in your 90s or over 100 years old and you were trading during the Great Depression, or you're in kindergarten and you could be trading into the 22nd century, this will end up being the biggest bubble collapse of your lifetime.

U.S. stocks, high-yield corporate bonds, real estate, art, used autos, baseball cards, and of course cryptocurrencies are all declining almost the same way that they did following a similar bubble in Japan which had peaked at the end of 1989. As for the U.S. stock market, there are many parallels in 2022-2025 with 2000-2003 which we will discuss in more detail later in this essay.

The most important characteristics of bubbles is that regardless of how or why they form, they all collapse nearly identically. This was first chronicled in detail by Charles Mackay in his 1841 classic publication, "Extraordinary Popular Delusions and the Madness of Crowds."

2023 will likely have a very different shape from 2022 although it will also primarily be a bear-market year.

Bear markets for all assets usually feature the most sharp rebounds within the context of dramatic long-term declines.

The lion's share of the market's losses in 2022 occurring in the most overvalued shares. High-P/E large-cap technology shares in 2022, just as in 1973 and 2000, were among the biggest percentage losers. From its March 10, 2000 intraday top to its October 10, 2002 intraday bottom, QQQ, a fund of the top 100 Nasdaq companies, lost 83.6% of its value which is more than 5 dollars out of 6. It is likely that a similar percentage decline is in progress following QQQ's all-time zenith in November 2021, with the losses for QQQ ending up twice or thrice as much as many other U.S. equity index funds.

We could get a much higher VIX and a much deeper pullback for U.S. equities in 2023 as compared with 2022.

I expect the S&P 500 Index to probably drop below three thousand at some point during 2023. If this occurs around mid-year rather than near the end of the calendar year, and if it is accompanied by the highest level for VIX since March 2000, massive investor outflows, and heavy insider buying, then this could provide our first opportunity to actually close out short positions and go heavily net long many deeply-undervalued securities. This would not be because the bear market will be over, as 2024 will almost surely feature the greatest percentage losses of the entire bear market. However, it could be possible to make numerous diversified purchases of washed-out securities around the middle of 2023 which could be huge winners within several months at which time most of them should be sold.

Even in the most severe bear markets, you can often make more money by going long prior to the bounces following deeply-oversold bottoms than from going short into the declines themselves.

Remember your favorite kindergarten story: Goldilocks and the Three Bears.

If March 2020 through January 2022 was Goldilocks, then 2022-2025 will feature the inevitable starring roles for the Three Bears. Baby Bear is an apt description of 2022, with numerous equity pullbacks each followed by a sharp rebound. Mama Bear should be an apt description of 2023 with a much more severe parental punishment, followed by a motherly strong rebound. This still leaves Papa Bear's powerfully destructive grip for 2024, of which we will talk more in future updates.

Investors on the equivalent of the Titanic prefer to upgrade their cabins rather than to head for the lifeboats.

In early 2001 investors had been migrating away from slumping large-cap tech shares and moving into energy, industrials, healthcare, and whatever else had been outperforming in 2000. Similar behavior has been occurring recently, with funds including XLI (industrials), XLV (healthcare), and XLF (financials) only modestly below their all-time tops. Last week XLI had the biggest net inflow of all exchange-traded funds. Just as in 2001, investors in early 2023 are unwilling to accept that we could be in a bear market and that they should therefore purchase something safe like 26-week U.S. Treasuries yielding between 4.8% and 4.9%. Instead, they think they are immune to losing money if they are in the "right" sectors.

As in all bear markets, most analysts are emphasizing "looking for quality" instead of diversifying into safer assets. The problem is that they're looking for quality in all the wrong places.

Bogleheads will be Bogleheads.

Near the end of 1999 I was working for a company in Manhattan which offered 401(k) options to its employees. Two of these choices were entirely invested in Nasdaq shares, one with large-caps and one which was more diversified but still highly speculative. The custodian of these assets sent a representative to "educate" (i.e., brainwash) employees on their options, failing to mention that these Nasdaq funds featured fees which were triple those of more conservative bond funds in the plan. They also did typical Boglehead tricks like showing charts of how these funds had performed--but going back to 1982 rather than some other year. I was upset enough to write a written complaint to the head of human resources and copy the CEO, and also to point out that they were subjecting themselves to potential legal action in a future year. They dismissed my complaints as being absurd.

In response, I organized a meeting of my co-workers in which I arranged to give a lecture about how the financial markets work. I was already teaching a class in the financial markets to new employees, so people were familiar with my experience. I gave one of my most eloquent explanations of how the Nasdaq and its funds were very dangerously overpriced. Many people commented that they had no plans to change their allocations since "the market always goes up in the long run" and this kind of commonly-heard nonsense, but over the next few years quite a few people came up to me privately and told me that they paid attention to my advice and reduced their risk.

The most reliable bear-market signals are ringing loudly of further losses.

VIX, an important signal of investor fear, hasn't even approached 40 so far in the current bear market. VIX slid to an intraday low of 18.01 on January 13, 2023, a one-year bottom. VVIX, also known as the VIX of VIX, has recently been rebounding from a multi-year nadir. We haven't had anywhere near the typical heavy net outflows that have characterized every bear-market bottom in history, nor the intense levels of buying by top corporate executives which had featured so prominently at major bottoms including March 2009 and March 2020 and were far more prevalent at minor bottoms such as December 2018. The failure by average investors to be worried about additional losses, and the indifference by insiders in accumulating shares near recent lows, are both clear signs that additional substantial losses still lie ahead.

In 2021 we had greater net exchange-traded fund inflows than during the entire twenty-year period from 2001 through 2020 combined. In 2022, even with notable declines for equity valuations, we had the second-highest total after 2021.

Stock Funds Took in More Cash in 2021 Than Two Decades Combined

Inflows for Globally Listed ETFs Reach Second-Largest Tally Ever in 2022

Fundamental valuations for most assets remain enormously above long-term historic averages.

QQQ and the S&P 500 have dropped from all-time record overvaluations a year ago but are still both trading at more than double their average ratios relative to the profits of their components. Real estate has fallen modestly from its all-time highs in recent months, but is about 75% overpriced on average in U.S. cities and more than that in many parts of the world. Assets in true bear markets don't just retreat somewhat and then resume their uptrends. They usually bottom well below fair value as we had seen for stocks in late 2002 and early 2003 as well as late 2008 and early 2009. For real estate we had many deeply undervalued neighborhoods at various points from 2010 through 2012.

After experiencing an extended correction since its September 28, 2022 two-decade high, the U.S. dollar index could be ready for its next multi-month uptrend.

Some undervalued assets including U.S. Treasuries have probably begun multi-year bull markets.

U.S. Treasuries, including their funds like TLT, fell to multi-decade lows in the autumn of 2022 and have begun forming several higher lows. Each week I have been buying 26-week U.S. Treasury bills along with other short-term Treasury securities as they have been enjoying their highest yields in 15-1/2 years. One consistent winner in bear markets going back to the late 1700s has been U.S. Treasuries of nearly all maturities.

Gold mining and silver mining shares likely resumed their bull markets in September 2022, right on schedule.

In March 2000 the S&P 500 completed its top and initiated a huge bear market which didn't end until October 2002. Gold mining and silver mining shares, as measured by $HUI and other reliable indices and funds, bottomed in mid-November 2000 which was eight months later. Fast forward to 2022. The S&P 500 completed its top on January 4, 2022 while GDXJ and related funds slid to multi-year lows (although remaining well above their March 2020 bottoms) in September 2022, once again eight months following the S&P 500 top. Looking back at 2000, gold/silver mining shares were among the top-performing sectors over the next three years and over the next decade. This is likely to be the case over the next several years also.

Gold mining and silver mining shares will dramatically outperform in the upcoming decade with periodic pullbacks of 15% to 25%. Only buy them after such pullbacks.

I have been maintaining my long positions in gold mining and silver mining funds including GDXJ, ASA, GDX, and BGEIX in that order. These consistently outperform following the collapse of U.S. growth bubbles, although they will periodically suffer moderate pullbacks of 15% to 25% just as they had done during November 2000 through December 2003.

I have been steadily adding to my short positions and reducing my long positions in preparation for the next downward trend for U.S. equities.

While I have been maintaining my short positions in XLK and QQQ, in recent months I have been adding to short positions in XLI, XLV, and SMH whenever VIX is below 20 and in XLE whenever insiders are heavily selling energy shares.

We had an all-time record level of insider selling of the largest global energy companies in recent months, so I began selling short XLE near 93 and 94 and have been continuing to add to this short position into its recent lower highs near 90 and 91. XLE has been one of the biggest outperformers since its March 2020 bottom and is therefore likely to be one of the biggest losers until insiders are once again heavy buyers. During several periods in 2020, including the spring and early autumn, we had the heaviest-ever insider buying of energy shares. Energy insiders seem to be especially astute in buying low and selling high.

Here are some useful charts which illustrate the above points.

The following chart highlights that the 2022 U.S. housing bubble surpassed the previous dangerous bubble peak of 2005-2006:

The Nasdaq in recent years has very closely tracked the Nikkei in the late 1980s as all true bubbles collapse identically:

The S&P 500 Index is its most overvalued in its entire history relative to risk-free U.S. government bonds:

Measured using price-to-sales, the S&P 500 has been far more overpriced recently than at any time in recent decades including 1999-2000:

Commercials, the equivalent of insiders for futures trading, have approached multi-year highs in accumulating the 30-year U.S. Treasury bond:

Lengthy bull markets from August 1921 through September 1929 and October 1990 through March 2000 were both followed by bear markets which lasted over 2-1/2 years apiece, therefore likely setting the stage for a repeat:

The bottom line: expect two more bear-market years through late 2024 or perhaps 2025.

Numerous analysts have declared that "the bear market is over" and use as "evidence" the hilarious proclamation that down years are followed by up years a large percentage of the time. This is like concluding that you don't need to take an umbrella when you go outside, since it will usually not be raining--except when it is. Checking the weather forecast or actually going outdoors to see for yourself is much more reliable than going by irrelevant long-term statistics, and there can be no doubt that stormy weather in the financial markets will be with us for roughly another two years. If you're very conservative then put all of your money in U.S. Treasury bills up to 52 weeks while emphasizing the weekly 26-week auctions. If you're willing to assume greater risk than gradually sell short the most-overvalued large-cap U.S. equity funds including XLI, XLE, XLV, and SMH.

Disclosure of current holdings:

Here is my current asset allocation as of the close on Tuesday, January 17, 2023:

TIAA(Traditional)/VMFXX/FZDXX/SPRXX/Savings/Checking long: 34.54%;

XLK short (all shorts currently unhedged): 17.52%;

QQQ short: 6.23%;

XLE short: 4.61%;

XLI short: 2.24%;

XLV short: 1.53%;

SMH short: 0.06%;

GDXJ long: 10.84%;

ASA long: 6.77%;

GDX long: 2.88%;

BGEIX long: 1.48%;

2-Year/3-Year/52-Week/26-Week/13-Week/5-Year TIPS long: 10.04%;

I Bonds long: 9.19%;

TLT long: 8.65%;

Gold/silver/platinum coins: 5.55%;

HBI long: 0.30%;

WBD long: 0.25%;

EWZ long: 0.08%;

EWZS long: 0.04%;

The numbers add up to more than 100% because short positions only require 30% collateral (by SEC regulations; some brokers require more) to hold them with no margin required.

"Successful investing is about recognizing the widest gaps between fair value and present value." --Steven Jon Kaplan

BABY DONE, MAMA NEXT (November 27, 2022): All we really need to know we learned in kindergarten, including the story of Goldilocks and the Three Bears. 2021 was Goldilocks and 2022 was Baby Bear, so 2023 will be Mama Bear and 2024 will be Papa Bear. If you can remember this then you will invest far better than most grownups.

2022 was a classic first year of a bear market with familiar themes from similar past bear markets.

Bear markets are much more similar to each other than bull markets. We experienced a large-cap growth stock bubble one year ago which was very similar to the bubbles of September 1929, January 1973, and March 2020. Just as in those three previous periods from the past century, the large-cap growth shares which caused the bubble in the first place mostly dropped in 2022 about twice as much as the average U.S. stock during the past year just as they had done in 2000. We also had three sharp bounces along the way, including the current one which began around the beginning of the fourth quarter of 2022. It is therefore logical to assume that 2023 will be similar to a year like 2001, with generally steeper losses during each downtrend along with stronger bounces in between downtrends and probably with a moderately larger total loss for 2023 compared with 2022.

Throughout 2022 the U.S. dollar, emerging-market securities, and highly-speculative assets (think cryptocurrencies) also behaved as they generally do during the first year of major bear markets.

VIX and TLT varied from the usual script throughout 2022.

Two interesting differences from analogous past bear markets included 1) the failure of VIX to reach 40 throughout 2022; and 2) the dramatic weakness for U.S. Treasuries and their funds including TLT which dropped about twice as much as they usually would during the first downward phase of a bear market. Since we had more net inflows into the U.S. stock market in 2021 than during 2001 through 2020 combined (not a misprint), presumably these tardy buyers included many less-experienced investors who are not familiar with bear markets.

I expect U.S. Treasuries and VIX to surge sharply higher during the first half of 2023, partly to compensate for their overdone 2022 weaknesses.

In a bear market you can make money selling short on the way down while purchasing U.S. Treasuries and gold/silver mining shares along with other deeply-oversold securities near each intermediate-term bottom.

Selling short the most-overpriced U.S. large-cap equity funds will likely continue to be a winning approach which you can enhance by periodically selling covered puts against these whenever VIX is beginning another retreat. This can be enhanced by adding to the most undervalued long positions whenever there is the least insider selling and the greatest outflows by the least-experienced investors. U.S. Treasuries and gold/silver mining shares in particular tend to enjoy net gains even with sharp corrections during these kinds of bear markets; look at a chart of VUSTX (long-term Treasuries) or $HUI (gold/silver mining shares) from 2000 through 2003. I have therefore been adding to both of these sectors during their most depressed periods of 2022.

Closed-end funds often provide outsized bargains during intermediate- and long-term bear market bottoming patterns.

Some investors aren't as familiar with closed-end funds as they are with open-end or exchange-traded funds. Especially during bear markets, closed-end funds are often sold by those who are disappointed or discouraged or who are otherwise emotionally unhappy about holding anything which has dropped for two years or longer. This causes many closed-end funds to sell at higher discounts to net asset value than they experience during bull markets.

In February 2009, near the end of the severe 2007-2009 bear market, I went to Cefa.com and ranked all closed-end funds from highest discount to lowest. By the middle of the ninth page the discount finally dropped below 20%. When I did the same test in January 2010, less than a year later but when fear of losing more money had been replaced by fear of missing out on additional gains, the discount dropped below 20% halfway down the very first page. This means that the number of closed-end funds with high discounts was 17 times as high in February 2009 as it was in January 2010.

It is especially likely that the next market bottom following a "Mama Bear" retreat, perhaps around the middle of 2023, could be accompanied by very high discounts for some worthwhile closed-end funds. Select those where the fund manager(s) have their own money in the fund, where they have been managing the fund for several years or longer, which have relatively low expense ratios, and which rely on value investing principles rather than using leverage or other financial tricks to enhance their performance.

Value investing is once again taking over from growth as these major groups take turns outperforming through the decades.

The following chart highlights the see-saw behavior of value vs. growth investing since 1975:

I expect value shares to lose much less than growth shares on the way down for a couple of years, just as value had lost much less overall in 2022, and to gain substantially more on the way up for five or six years during the next major bull market (2025 through 2030, approximately).

Differentiation is clearly underway.

In my last update I forecast that investors would begin to differentiate among sectors, so that not all shares would go up or down by similar percentages. This has been increasingly prevalent in recent months as gold mining and silver mining shares and some emerging markets have been far outgaining large-cap U.S. growth favorites from 2020-2021. Part of the critical shift from growth to value will be the increasing outperformance of small caps versus large caps, emerging markets versus U.S. securities, mining shares versus technology, and in general the big winners of 2000-2008 trouncing the big winners from 2009-2021.

It is okay to be a Boglehead with assets which may have completed their cycle bottoms including government bonds and gold/silver mining shares. It's not okay to be a Boglehead with SPY, QQQ, or any collection of previous large-cap U.S. growth favorites.

Why did U.S. large-cap growth stocks perform so well in 2021? It wasn't because their profits increased faster than the profits of other sectors. The primary reason by far is that we had the biggest-ever inflow of inexperienced investors in 2021 who in many cases had never invested in anything before. Being unfamiliar with the financial markets, they invested in names they knew from their everyday lives regardless of how overpriced they had become, and therefore created unsustainable bubbles. Just as a hangover must result from having far too much alcohol, 2022-2024 is the inevitable morning-after resolution of 2021. All of those big-name U.S. technology shares have to go back to fair value and probably well below, since bear markets usually end with an average 30% to 50% discount to fair value for these shares.

Dollar-cost averaging is not a worthwhile approach for any overpriced asset class. You might lose less on the way down but it will still represent a huge overall loss.

I am gradually adding to my short positions and reducing my long positions during the upcoming month to restore their balance from the middle of August 2022.

At the end of September and the beginning of October 2022 I sold covered puts and added significantly to all of my long positions in order to create a much heavier weighting of longs versus shorts compared with their mid-August interrelationship. Now that VIX has retreated almost all the way to 20, I plan to use the next few weeks, especially shortly after the opening bell into all upward spikes, to progressively reduce my long positions except for U.S. Treasuries and gold/silver mining shares and to add to my short positions in XLI, XLE, SMH, QQQ, and XLK. You can't make as big a percentage gain by selling short as you can by being long, but in a bear market the most consistent gains will almost always be on the short side.

XLI and XLE are new short positions, with SMH possibly joining them soon.

I began to sell short XLE when it had first reached 93 a couple of weeks ago, and I have been more recently selling short XLI at 101 and above. Both of these sectors are among those which have more than doubled from their respective March 2020 bottoms, have experienced intense selling of their components by top corporate executives, have enjoyed massive net inflows in recent weeks, and frequently climb shortly after the opening bell most days which is when the least-experienced investors do a large percentage of their total trading. SMH has experienced a sharp bounce in recent weeks so I may begin selling it short soon. If QQQ approaches 300 and especially if it surpasses that level, it is also worth adding to my already-existing position.

I'll take the over on the duration of this bear market.

Many investors believe that either the current U.S. equity bear market has ended or that it will terminate within a year or so. In my opinion that's not likely and I'll happily take the "over" on that bet. The earliest the current bear market could end, based upon the experience with all past lengthy bull markets (the bull market ending in January 2022 had begun in March 2009), would be in the summer of 2024 and that is probably too early by some unknown number of months.

I'm sure that by the time the current bear market has ended, I'll be losing plenty of money on the long side from having gotten invested far too soon and too high.

Old-fashioned savers can get their best deals from U.S. government bonds, especially U.S. Treasuries of 26 weeks, 52 weeks, 2 years, and 3 years until maturity.

Most investors are unaware that U.S. Treasuries have been sporting their highest yields since the summer of 2007. You can get over 4.7% on some securities and over 4% even on the shortest 4-week Treasuries. A good place to do this is TreasuryDirect.gov which charges no fees and allows you to participate in the same auctions as multi-billion-dollar institutions.

The bottom line: 2023 will resemble 2022 but with larger percentage pullbacks, bigger rebounds, and outperformance by U.S. Treasuries and gold/silver mining shares.

As we transition from the first to the second year of a three-year U.S. equity bear market we are likely to have a similar transition as we had experienced in 2000 to 2001. Mama Bear will rip apart large-cap U.S. growth shares, but will be considerably gentler to safe-haven assets including U.S. Treasuries along with gold mining and silver mining shares; Baby Bear in his inexperience treated almost all assets the same (i.e., not with care). In addition to selling short, put lots of money into 26-week, 52-week, 2-year, and 3-year U.S. Treasuries which have enjoyed their highest yields since the summer of 2007.

Disclosure of current holdings:

Here is my current asset allocation as of the close on Wednesday, November 23, 2022:

TIAA(Traditional)/VMFXX/FZDXX/Savings/Checking long: 30.97%;

XLK short (all shorts currently unhedged): 18.84%;

QQQ short: 6.71%;

XLE short: 4.90%;

XLI short: 0.64% (November 25 close);

TSLA short: 0.35%;

GDXJ long: 10.40%;

ASA long: 5.93%;

GDX long: 2.74%;

BGEIX long: 1.34%;

I Bonds long: 8.95%;

TLT long: 8.78%;

2-Year/3-Year/52-Week/26-Week/13-Week/5-Year TIPS long: 7.76%;

Gold/silver/platinum coins: 5.54%;

INTC long: 2.34%;

TKC long: 2.33%;

GEO long: 1.87%;

TEI long: 1.42%;

KWEB long: 1.32%;

FXY long: 0.85%;

FXB long: 0.18%;

FXF long: 0.17%;

VZ long: 0.65%;

EPOL long: 0.34%;

T long: 0.22%;

WBD long: 0.20%;

HBI long: 0.11%;

LEMB long: 0.06%;

PCY long: 0.05%;

NGL.PR.B long: 0.02%;

CEE long: 0.02%.

The numbers add up to more than 100% because short positions only require about 30% to hold them with no margin required.

"A value strategy is of little use to the impatient investor since it usually takes time to pay off." --Seth A. Klarman

BIG BOTTOMS (October 16, 2022): Most investors misunderstand bear markets. Bear markets create opportunities for much greater and much faster profits than bull markets. This is because 1) bear markets on average last about one-third the total time of bull markets; and 2) the annualized percentage fluctuations in bear markets are roughly triple those during bull markets.

A bear-market bottom is a lengthy process, not an event.

During bear markets some assets tend to complete their lowest points within one year of the original top. If we begin counting this bear market starting with the S&P 500 all-time zenith of 4818.62 on January 4, 2022 then the bear market is 9-1/2 months old. This is roughly the time when a wide variety of assets including U.S. Treasuries, gold mining and silver mining shares, and some currencies including the Swiss franc and Japanese yen often complete their bottoms prior to powerful uptrends.

Most investors don't respect fair value or differentiation.

Fair value refers to the price at which any asset precisely reflects its fundamentals. Currently the price at which the fund QQQ would exactly match its historic average valuations relative to the profit growth of its components would be about 114. This is very far from its all-time record overvaluation of 408.71 less than one year ago. While QQQ has slumped below 260 several times in recent days, this is still far above 114, so the overall long-term downward trend for QQQ must remain lower for another two or three years until it is trading at a typical discount of 30% to 50% below fair value.

Investors are as baffled about bear-market rebounds as they are about bear markets.

One of the least-understood characteristics of any true bear market is that these feature frequent intense rebounds. Already in 2022 we had two surges higher, from mid-March to late March and then from mid-June to mid-August. We are probably transitioning to the third powerful surge higher of 2022. This recovery has been clearly signaled with the highest put-call ratios ever recorded in the history of the stock market (see chart near the bottom of this update), all-time record net outflows from many U.S. equity funds, the highest ratio of insider buying to insider selling since March 2020, and other reliable rebound foreshadowing. The U.S. dollar index and VIX have formed lower highs since September 28, 2022 which, in an environment of generally falling stock prices, usually indicates that equity prices are set for a sharp bounce higher.

Here is an example of the huge frequent bounces for QQQ during its 2000-2002 bear market when it had lost 83.6% of its value in 31 months:

Differentiation is likely to be among the top stories of the next two years.

What has happened so far in 2022? Investors have sold everything, especially in recent months: stocks, bonds, gold, currencies, real estate, art, etc. Almost nothing has been spared. This is common to the way that bear markets behave: in their early stages, investors are so confused that they sell everything and ask questions later.

Sooner or later, assets which classically bottom earliest tend to recover sharply. This usually includes U.S. Treasuries of all maturities, gold mining and silver mining shares, and safe-haven currencies like the Swiss franc and Japanese yen--and in this case also the British pound due to its widespread unpopularity. The more these assets diverge from QQQ and SPY, the more that investors will pay attention to them. Since very few assets are rallying in any bear market, the few which are climbing enjoy outsized attention and enthusiastic participation. Once funds like GDXJ have gained 50% or 100%, investors will be eagerly chasing after them because they desperately want to own something that is rising when almost everything else is falling.

Energy shares have been outperforming so far in 2022, thereby enjoying far too much attention relative to their fundamentals.

Why have energy shares been among the few winners so far in 2022? You will hear lots of explanations in the media, but the real reason is that they have been one of the few assets with positive gains in this calendar year. Investors are therefore crowding into them because they want to own something which is going up instead of going down. I believe this will end badly so I am staying away from energy until we have much lower valuations and much heavier insider buying in the energy sector. The lows in 2021 for funds including XLE and XES are warning of trouble ahead, representing a drop of almost half from their current levels whenever their 2021 lows are revisited eventually.

Gold mining shares and U.S. Treasuries will probably be among the biggest winners of the next two to three years.

Funds like GDXJ could triple or more from their recent lows including 25.80 for GDXJ, while "boring" U.S. Treasury funds like TLT will probably return 50% or more including reinvested dividends. This would not put either GDXJ or TLT anywhere near their respective historic highs. The more these ascend, the more that people will notice this behavior and will want to jump aboard the bandwagon. The secret to success with investing is to purchase these classic early-bottoming shares far ahead of everyone else, relying on their consistent bear-market outperformance to shine sooner or later. Investors become overly obsessed with only buying an asset which has already been rising, thereby causing such investors to miss out on half or more of their total percentage gains.

Selling puts on oversold but still-overvalued assets is a little-appreciated method which is even more profitable than selling covered calls.

Put prices tend to be their most overvalued when investors are panicking. If you are short something which is likely to eventually drop by 80% or more from its zenith--think QQQ--but which is temporarily being sold in a panic, then instead of covering your short position consider selling covered puts against it. This will allow you to capture temporarily-inflated time premium while retaining your short position. If there is an imminent collapse then you won't make as big a profit as you would have done otherwise, but you will usually get much more up front than you deserve in options premiums. Far more investors buy options instead of selling them, causing their prices to be inflated. Options buyers in general are buying hope via expensive lottery tickets, while options sellers tend to be more-experienced successful long-term options traders.

Long bull markets are followed by long bear markets.

The bull market which lasted from August 1921 through September 1929 was followed by a bear market which ended in July 1932, 34 months later. The bull market from October 1990 through March 2000 was followed by a bear market from March 10, 2000 to October 10, 2002, 31 months later. We just had the lengthiest bull market in history from March 2009 through January 2022, so expect the current bear market to last for at least 2-1/2 years and perhaps longer.

This gives us numerous opportunities to profit from--or to lose money by misreading--both the long and short sides.

Many assets will not bottom until 2024 or 2025.

The Nasdaq and the S&P 500 Index, along with related funds including QQQ and SPY, will probably not bottom until late 2024 or early 2025. Real estate, art, collectibles, and other non-financial assets will probably bottom several months later than U.S. equity indices just as they had mostly peaked several months later in 2022.

Here are five useful charts.

Investors are suddenly chasing after downside protection at a more frenetic pace than at any time in the 21st century:

The average investor has been panicking out of the market as aggressively as they were piling in near the end of 2021 and the start of 2022:

Commodity trading advisors are repeatedly buying near tops and selling near bottoms:

Gold's traders' commitments recently achieved a four-year bullish net extreme:

Commercials for the 2-year U.S. Treasury note reached an all-time extreme of net accumulation:

The bottom line: expect a powerful rebound but the U.S. equity bear market will not end for another two years or more.

Only buy something if it is historically likely to be in the process of completing a bottom which will be followed by dramatic percentage gains. Gold mining and silver mining shares often bottom within a year following a topping pattern for large-cap growth favorites, while U.S. Treasuries and safe-haven currencies also tend to bottom early. Most assets will not likely bottom for another two or three years.

Disclosure of current holdings:

Here is my current asset allocation, with the funds in each group ordered from my largest to my smallest positions:

VMFXX/FZDXX/Savings/Checking long: 33.4%;

XLK/QQQ/TSLA short, hedged with covered puts: 27.9%;

TLT/I Bonds/2-Year/3-Year/52-Week/26-Week long: 23.5%;

GDXJ/ASA/GDX/BGEIX long: 19.2%;

Gold/silver/platinum coins: 5.3%;

INTC long: 2.21%;

TKC long: 1.67%;

GEO long: 1.50%;

TEI long: 1.29%;

KWEB long: 1.17%;

FXY/FXB/FXF long: 1.16%;

VZ long: 0.63%;

EPOL long: 0.29%;

T long: 0.20%;

WBD long: 0.20%;

LEMB long: 0.04%;

PCY long: 0.03%;

NGL.PR.B long: 0.03%;

CEE long: 0.02%.

The numbers add up to more than 100% because short positions only require about 30% to hold them with no margin required.