Are we in a short-term correction or full blown bear market?

8th June 2010

The argument that suggests we're in a new bear market

It was all going so well. After dipping below 3500 in March 2009 the FTSE 100 had made it right back to 5800 before the sovereign debt crisis brought the bull market to an end.

Fears that Greece, Spain and others may not be able to afford their debt repayments has spooked investors and ‘wiped billions off share values' as the headlines put it.

It was the worst May in 70 years for the Dow with the index down more than 10%, which officially makes it a correction.

According to Standard & Poor's chief investment strategist Sam Stovall , investors have been through this same scenario 29 times since the Second World War.

"In 17 cases, they've avoided seeing a correction turn into a bear market. In 12 cases, they weren't so lucky."

Legendary investor Jim Rogers believes this will be unlucky number 13 because of the Central Banks' policy of quantitative easing .

"The best place to have your money is in either sound currencies or real assets. Putting into paper money at a time when paper money is being debased all over the world is usually not a good thing to do."

I recently asked Jeremy Batstone-Carr, director of private client research at Charles Stanley, about his take on the situation.

His advice was to look at the bond markets, where the yield on two year Treasury Bills is at an all time low of 0.77%.

This suggests that there is not much evidence of a lasting economic recovery, which is bad news for share prices and why he suggests investing in gold.

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