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Numerous market records were set during the first decade of the new millennium, including the price of Gold: $1,217.40 December 2009, Oil: $147.27 July 2008, Gasoline: $4.114 July 2008, the Euro: $1.6038 July 2008, the DJIA: 14,165 on October 9, 2007, the S&P 500: 1,565 on October 9, 2007, and the Nasdaq: 5,049 on March 10, 2000. National median home prices reached $226,000 in August 2006. 30-year fixed mortgages (4.71% December 2009) and 10-year Treasury yields (2.06% December 2008) hit record lows. Then there is the record of futility set by the U.S. stock markets. From the close on the last day of trading in December 1999, the DJIA declined 1,069 points (-9.3%), the S&P 500 declined 354 points (-24%), and the Nasdaq declined 1,800 points (-44%). This is the worst performance for stocks in any decade EVER – and yes, that includes the Great Depression. For the decade, the BCN Advantage Actively Managed index enjoyed a +83% GAIN. The Buy & Hold index suffered a 9% loss. That 92% outperformance is directly attributable to tactical market timing. Long-term “secular” BULL markets are easy to recognize. The most recent, from 1982 to 2000, was characterized by an unrelenting upward trend, with only occasional hiccups (like October 1987). Secular BEAR markets are not mirror opposites. Though they match bull markets in duration (typically lasting 15+ years), long-term bear markets are characterized by repeating cycles of declines and rallies. The S&P 500 suffered through 2 major DECLINES during the decade: Over the 2½ years that ended October 9, 2002, the S&P 500 lost 49%. Over the 17 months that ended March 9, 2009, the S&P 500 lost 57%. Conversely, the S&P 500 experienced 2 major RALLIES during the decade: Over the 5 years that began October 9, 2002, the S&P 500 gained +101%. From March 9, 2009 through year-end, the S&P 500 gained +65%. It’s worth noting that the 4 worst total return years for the S&P 500 in the last 75 years took place in 1937, 1974, 2002 and 2008. In the FOLLOWING years, the S&P 500 gained +31.1% in 1938, +37.2% in 1975, +28.7% in 2003, and +26.5% in 2009. The most reliable “crystal ball” is a working knowledge of market history. How else could we anticipate (in January 2009, 8 weeks BEFORE the March bottom) “an 18 to 24 month rally that should take the indexes up 50% or more?” Eventually, the excesses and imbalances in capital, credit and real estate markets will work their way out, but likely NOT before we experience one more wrenching decline (20% or greater). Secular bear markets end when P/E ratios for the major indexes compress below 10. With the S&P 500 at 1115 and 2010 projected earnings at 46, the P/E ratio is currently at 24. Initial public offerings, the life-blood of young bull markets, must re-emerge: Only 12 venture capital backed companies completed an IPO in 2009, and just 18 in the past two years, the lowest total since 1974-75. Finally, what unseen, unanticipated pitfalls could derail the current rally? (1) Lingering high unemployment – above 10%, (2) Heavy-handed regulatory reforms, (3) Tax increases, (4) Defaults on foreign national debt, and (5) Ebbing demand for U.S. Treasury debt. This last point is especially disconcerting. In 2009 ALONE, the Federal deficit was $1.42 Trillion. In October 2009, NET purchases by Foreign governments were $21 Billion (a mere $250 billion annualized). For the record, China, the largest holder of U.S. Treasury securities, maintained its holdings at $798.9 billion in October 2009.