A "bear market" is frequently defined as a decline of at least 20% in the S&P 500 index. Trouble is that by the time pundits provide their seal of approval that we are indeed in a bear market, the index has already lost 20% from its peak. Many of them will likely have told investors to buy the dips all the way down.

In our August 4 Merk Insight Coming Out - As a Bear!, we argued that a bear market is about to commence. Mind you, that was just before the surge in volatility. At the time, some wondered why a "currency and precious metals" guy like myself would have anything to say pertaining to the stock market; just about a week later, there were numerous media reports blaming the currency markets for turmoil in the stock market. Go figure.

We are not going to repeat the entire bear case again, except to summarize that we believe we have shifted from an environment where investors think the glass is half full to one where the glass may be half empty. This is largely induced by the Fed's attempt to extricate itself from its 0% interest rate policy; that's because, in our analysis, just as the Fed's extraordinary policies have fostered complacency, any attempt to move away from it may cause fear to return to the markets.