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BEHIND THE MONEY: The 2002-2007 Bull Market...Was It Only in Our Dreams?

BEHIND THE MONEY: The 2002-2007 Bull Market...Was It Only in Our Dreams?

"No, no, no, no only in my dreams,
As real as it may seem,
It was only in my dreams."
-Deborah Gibson

The S&P 500 today fell back to the closing low of the Bear Market that ended in 2002, eerily hitting the exact 776.76 close of October 10, 2002. If we close below that level today, that will confirm that what we experienced in that five-year period was just a mirage and that we are still mired in the bear market which began in March of 2000.

So does that mean all the progress that the country and globe made in those 5 years was all for naught?

"Even when we were at our peak 6 months ago, the Nasdaq was way off its 2000 high," said Zachary Karabell, president of River Twice Research in New York and frequent contributor to Fast Money. "This has never rally been a bull market."

Well what was it then? What was perception and what was reality?

Innovation by Apple and Google was real. Amazing retailing by Wal-Mart and McDonald's was and is real.

"China is real; Apple is real," said Karabell, who blogs on RiverTwice.com, his firm's web site. "The financial profits were nuts."

In that 2002-2007 period, financials used insane leverage, a phantom housing market and a derivatives boom to become the largest portion of the U.S. stock market. In 1990, they were the eighth largest, according to Merrill Lynch. (After this year's drop, they are currently fifth.) Moving money around the world and providing capital simply didn't belong as THE biggest part of our market. The problem is that because the financial system is such an integral part of the economy, the popping of this bubble will be very painful, dragging every sector with it down the tubes because of its paralyzing effect on business and consumer borrowing.

So what does this mean for your portfolio? Well until this "ponzi scheme", as Karabell calls it, unravels on Wall Street, build your watch list of stories that were "real" over the last five years. When the time is right, you may be able to get them for unreal prices.

Note: I read the rest of the Debbie Gibson lyrics to see if there was some sort of happy ending that would inspire me. That too does not end well. It seems Debbie does not get her man back. He was truly only in her dreams. Let's hope that this market ends up with a happier ending than Debbie.

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