Would you like to make money in a bear market? Believe it or not, most people still think you can only make money from the stock market when prices are increasing. This is not the case at all. As a matter of fact, you can make just as much money – if not more – from decreasing stock prices. And decreasing stock prices are what you’re about to see. The stock market might have been taking a hit recently, but it’s nothing compared to what we’re going to see in the next 3 to 5 years. What most people don’t understand is that we’re now entering a deflationary environment. It would be wise to profit from it.

The best part about shorting the market these days is that you can now do it without having to borrow money. In other words, you don’t need to use margin. You can buy a short ETF (Exchange Traded Fund) that tracks a specific sector. If you’re buying an inverse fund, it will move in the opposite direction of the sector. For example, if you buy the UltraShort Financial ETF: FAZ, it will move up when financials are going down.

While you don’t have to borrow money, it’s still important to remember that these are risky trading instruments. It’s not uncommon to see 10% - 15% moves in one day, especially in a volatile market. That being the case, in addition to expense ratios, many people feel as though they should be used for trading and not investing. To put it simply, they’re wrong. First of all, the expense ratios are small. Since these ETFs move at such a rapid pace, the 1% to 2% expense ratio can be made up in less than an hour. Secondly, it’s very difficult to time the market on a daily basis. If you know the overall direction of the market, it’s better to sit tight and watch the money roll in. Look at SKF in 2008. It tripled within a few months. Expense ratios were not a concern.

As far as the overall direction of the market goes, expect to see the DOW reach between 3,000 and 5,000 before our ‘recession’ is complete. It’s really more than a recession, but no one wants to use that forbidden word. The good news is that everything will get cheaper in a deflationary environment, including gas, food, and discretionary items. What you should pay most attention to, however, is stock prices. To be safe, plan on covering your short positions at around DOW 6,000. At that point, move into cash and wait for economists to predict the end of the world. This is the point the market cannot move lower, simply because fear will have reached its peak. You will then have an opportunity to make more money than you could have ever imagined. Stock prices will be absurdly low. Keep in mind, the stock market overshoots in both directions. Therefore, everything will be on sale. The best news is that you will always make more money on the way up. In other words, if you buy BAC at $3, don’t be surprised if it quadruples within three months. This has already happened in 2008. It will most likely happen again.

A parting note is to be careful with commodities. If you own gold stocks – not gold bullion or coin – sell it immediately. Gold and other commodities will not be able to hold in a deflationary environment. Expect gold to lose at least half its value and oil to drop to at least $30 per barrel. However, when the economy eventually recovers, commodities will be the best investment of them all.

If you want to make money in the next few years, the best way to do so is by profiting from the decline. Be a true capitalist, short the stock market.