The bear is official...

 According to the Financial Times, the S&P 500 entered official bear market territory this morning, when the index plunged to less than 1,100 in the first few minutes of trading. That puts the index – which accounts for roughly 80% of U.S. stocks by market cap – at nearly 20% below its April 29 peak.

So what? If you can't ride out and take full advantage of a bear market, you shouldn't be in stocks at all. Nobody knows exactly when to get out and back in.

Sure, I told everyone to hold cash and buy dollars back in April. I thought stocks were expensive, and there was too much negative sentiment toward the U.S. dollar. Everyone was talking about buying gold and the dollar crashing. It was overdone. So I made a recommendation based on the value of things. I thought stocks were generally worth less than everyone said and dollars were likely worth more than everyone thought. But who knew how long it would take for those conditions to swing the other way?

As it turns out, I made my "hold cash" recommendation at exactly the right moment. It looks like a "prescient call," but the timing of my call was strictly luck. I have no more ability to call market tops and bottoms than anyone else does. Don't believe anyone who says they can time the market. If they appear to have done so recently, I promise you, they're more lucky than smart.

 I love bear markets. I'm a greedy investor… And without bear markets, investment bargains don't happen. More on that in a minute… But first, let's check in with perhaps the biggest bear market hater in the world...

 Federal Reserve Chairman Ben Bernanke would make a terrible investor. He hates bear markets and believes it's his duty to make the stock market soar out of sight.

Today, in testimony before the Congressional Joint Economic Committee in Washington, Bernanke said the Federal Reserve "will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability."

Why can't he just say, "I'll keep printing money until the stock market goes up"? Price stability is the Federal Reserve's euphemism for its policy of constantly printing money so there's always some inflation in the economy. A soaring stock market makes people feel rich, inducing them to spend money... until they go to the grocery store... or the gas station... or the clothing store... or anywhere else they need to go to survive. Then, they discover that the newly printed money seems to have made its way into everyone else's hands.

Regarding the European crisis' inevitable impact on the U.S. banking system, Bernanke reassured us that, all contradictory rhetoric aside, bailouts for "too big to fail" banks are alive and well... Bernanke said, "We would make sure we would stand ready to provide as much liquidity against collateral as needed as lender-of-last-resort for our banking system."

 A true believer in government's superior ability to make economic decisions – despite a couple centuries' worth of evidence to the contrary – Bernanke also says Congress and the White House need to interfere in the economy even more. Bernanke says economic growth is the government's responsibility as much as anyone else's. And he recommends the government get more deeply involved in "labor markets, housing, trade, taxation, and regulation."

 We expect Bernanke (and all government cronies) to say dumb things and avoid ideas that might actually work. But what about the financial press? Why are they such a bunch of spineless parrots? For example, Bloomberg could have said, "Market Dumb Enough to Believe Fed Interference Is a Good Thing." But instead, it said, "Stocks trim losses on valuation, Bernanke signals." (As if anyone at Bloomberg has any clue of why stock prices move up or down a measly 1%.) That's their job, though, isn't it? Assigning meaning to meaningless events, and avoiding anything that might actually help investors make profits and avoid losses.

 What about S&A's editors? What are they doing as the market continues to plummet? Well, at least one of them is getting bullish. Jeff Clark told his Advanced Income readers, "You Must Buy Stocks Today." Jeff began his update...

Jeff goes on to outline an options trade on one of the safest, cheapest stocks in the market, one I've written about a number of times. If you want to find out how to make fast, double-digit gains in options, Jeff is the one guy I know who can help you do it better than anyone. To learn more about his strategies, click here.

 Helicopter Ben Bernanke might hate bear markets, but I love them. Without bear markets, I'd likely be out of a job. Bear markets create investment opportunities. Bull markets reduce the opportunity set and guarantee lower future returns. Bear markets are necessary, useful, and highly beneficial to a real investor. Bull markets are a curse because they lower that investor's future return potential.

Like Jeff Clark, I'm getting more bullish, too. This morning, I ran a quick stock screen on Bloomberg. I was looking for companies with relatively little debt, trading at cheap multiples of free cash flow.

Here are the 20 largest names by market cap…

(Note: Enterprise value is market cap plus debt minus cash. It's the value of the business, independent of net cash. So comparing it with free cash flow shows us how cheap it is relative to the cash it's generating.)

I know a few of these companies well. But I don't know much about most of them. For the sake of argument, let's say they're all sound, safe businesses. The average multiple of enterprise value to free cash flow is about 6.9 times. That corresponds to a yield of about 14.5%. Right now, the 10-year U.S. Treasury note is yielding just 1.8% today. This group of 20 businesses is yielding eight times more than the obligations of a bankrupt government intent on debasing its currency. Some of these companies have the safest, cash-loaded balance sheets in the world.

The choice shouldn't be difficult. Based on our little exercise, you should sell U.S. Treasurys and buy high-quality U.S. stocks, trading at single-digit multiples of free cash flow. And with the 10-year yield moving up today (and its price moving down), maybe investors are starting to wake up a little to the lousy proposition the government is offering investors.

 Commodity companies tend to get pounded in bear markets. The cheapest stock on the list is Marathon Oil at less than four times trailing free cash flow. Freeport McMoRan is also fairly cheap, at 5.5 times free cash flow.

Among the four largest stocks on the list are three of our World Dominator picks – Microsoft, Berkshire Hathaway, and Cisco. All three are either paying dividends and/or buying back shares, creating huge value for remaining shareholders.

That's what I'd buy most aggressively right now – the big, safe, dirt-cheap World Dominators. I don't think the time has arrived to pile heavily into the smaller, more speculative names. I could be wrong. (And for trying to time the market, I'd deserve to be…) But I'd start slow, play it safe... and within that context, be greedy as hell.

I'll have a new addition to the World Dominating Dividend Grower list in the next issue of The 12% Letter, Stansberry Research's income-oriented letter. My research partner – the intrepid Mike Barrett – and I have narrowed it down to two possible names.

The one I like best right now has grown its dividend every year for 38 years in a row. It has grown the dividend at more than 17% per year for the last 10 years. It's the No. 1 company in its industry. It gushes free cash flow. And it's trading for around half what I think it's worth.

To get access to our next safe, World Dominating Dividend Grower in The 12% Letter (when the issue comes out), click here.

 I think there's too much talk about October being a great month for a bear market bottom. It doesn't matter much when the bottom comes. If you know what you're doing, tops and bottoms are relatively meaningless. The only people who think they're important are the vast herd of novice investors and those who make money selling them news and information. Don't be one of them. Learn about businesses, and stop trying to predict price movements in securities.

 New 52-week highs (as of 10/3/11): MSDW Insured Muni Income Trust (IIM), DR Horton (DHI).

 In the mailbag… Lots of feedback about yesterday's Coca-Cola controversy. Do you believe in "buying American"? Or are you more economically literate than that? Write us at feedback@stansberryresearch.com.

 "The note from subscriber Greg V., published in the Monday Digest, was critical of Coke for manufacturing products for their overseas sales overseas, where it is convenient to the source of consumption. He referred to this practice as being at the 'expense of American jobs.' Which is a common complaint against American based corporations that establish overseas operations.

"It is high time that the average person in this country accept the fact that jobs do not belong to America, they belong to the company that creates them through the allocation of risk capital and they are free (and obliged) to create those jobs in the locations that return the maximum benefit to the shareholders of the company, be it public or private. As long as the average employee in this country continues to view the jobs offered by a company as 'our jobs' rather than accepting the fact that they belong to the company that created them, As long as we continue to create conditions in this country that are less favorable to employment than our overseas competitors, we can expect the continued erosion in the number of jobs made available to Americans." – Paid-up subscriber K.M.

 "Regarding the guy who complains about Cokes overseas production instead of using US labour…

“There is a chain of small supermarkets here in Thailand that specialize in supplying ex-pats with food items from home that they couldn't otherwise buy because there is no local production. For example, Cherry Coke is not available from the local bottler so it is imported from the U.S. and sold for the bargain price of US$1.60 per can. The price of locally canned Coke? US$0.33.

"Or how about US$6 for a small bag of US made potato chips (compared to US0.75 for a similar size package of locally packaged Frito-Lays)."

"There is no shortage of overseas companies that would be ecstatic if Coke and other US brands only sold 'made in US' products overseas." – Paid-up subscriber R.S.

 "He is proof that some people think the pie can't grow. That it is one size and you must get what you can. Coke's long-term success has created millions of opportunities, wealth and income for employees, shareholders, communities, suppliers and charities for over 100 years. Hey, ask Herman Cain!! His dad was chauffeur for Mr. Woodruff.

"Poor Greg V. He doesn't have a mind of his own to see that a successful business can grow the pie for generations and benefit millions of people in this country and around the world. Too bad Greg V and others like him don't look at the facts.” – Paid-up subscriber J.L.

 "Dennis Gartman of the eponymous financial newsletter says the following…

"I was not aware of this almanac's importance. Please advise your readers, or at least those of us who are always learning." – Paid-up subscriber B.W.

Ferris comment: You may now consider our readers advised of the almanac's existence. I need more evidence of its importance. History rhymes… It doesn't necessarily repeat. You'll get a lot farther learning about the value of businesses than you will by trying to predict the movements of securities prices.

 "I personally appreciate it when you, or your other writers there, have the respect for the intelligence of your readers where you understand you don't have to have recommendations every month. The savvy reader understands there are times we need to just sit still and wait. Seems a lot of writers feel they have to come up with their 'monthly hot tip.' Thankfully, your team doesn't seem to do that, for the most part." – Paid-up subscriber J.V.

Ferris comment: Thanks, Jim. I need to hear this every once in a while, since I frequently fail to offer a new pick for a month or two when there's nothing attractive to recommend. I'm perfectly willing to go the other way, too. For example, if the current market action keeps up, I'll be recommending stocks two at a time.

 "I can tell that we are entering another recession because the same thing that happened in 2008/2009 here in Pensacola, Florida is now happening again. Nice, new looking cars and trucks are showing up for sale in peoples yards. Things are looking grim again." – Paid-up subscriber E.L.

Regards,

Dan Ferris

Medford, Oregon

October 4, 2011

The bear is official... The timers are full of it... Ben the bear hater... Fed to Congress: 'Do something'... Jeff Clark: You Must Buy Stocks Today... 20 cheap stocks... Sell the 10-year now... My newest World Dominating Dividend Grower...