The wrong way to invest in a secular bear market is to lunge after stocks even at these multi-year lows. We’re still mired in a severe credit-inflicted recession that will probably keep a lid on growth for the next few years until leverage in the financial system is finally exhausted.

However, concerted global government spending – unprecedented in the post WW II era – implies at least a few quarters of positive GDP growth in the United States and overseas in 2010. That’s exactly what transpired in the mid-1930s following FDR’s first New Deal.

The right way to reduce risk is to build an equity position gradually over the next several months while also adding inflation-based assets, which should also rally along with the stock market as inflation concerns rise. Treasury bonds should be avoided, or sold short while investment grade debt (non-financials) and TIPs should be purchased.

An extended or multi-month stock market rally – long overdue even in the context of a bear market – should be accompanied by a lower dollar and rising Treasury bond yields as risk-averse investors dump safe assets in return for greater risk. This supposes that distressed hard assets like commodities, including oil, should rally in conjunction with equities as the dollar declines in any marked advance for stocks. This scenario also favors gold as investor expectations of renewed inflation drives investors out of the dollar.

I’ve started to buy stocks again for the first time since the advent of the credit crisis 19 months ago. My strategy is to scale-in very gradually or dollar-cost-average into global markets while also buying commodities, gold and TIPS or Treasury Inflation-Protected Securities. To reduce my equity risk in an environment of intense volatility, I’ve also purchased non-financial convertible bonds, which yield about 7%.

Foreign currencies, which have largely crashed against the dollar since last July, also look like strong speculations in this bear market rally. Resource currencies like the Australian, New Zealand and Canadian dollar are attractive while in Europe I like the Norwegian krone – heavily tied to the oil cycle. The Brazilian real, which has declined much less than other global currencies recently, is also poised to recover sharply.

The United States is desperate to grow her exports again. While other countries are now benefiting from cheap currencies after crashing versus the dollar since last summer, the greenback is next in line to decline once risk returns to the market. The Fed is so busy flooding the financial system with credit that it’s almost a given the dollar will resume its bear market, which began in 2001.

Currency chaos remains a central theme in this environment and a lower dollar would be bullish for U.S. capital markets provided the decline was orderly. It would also spark the much awaited close above $1,033 for gold. The above scenario is likely to emerge sometime in 2009.

The major caveat in this bear market rally remains credit, which is still largely fractured and recently started breaking down again in February as credit spreads widen accompanied by higher LIBOR rates since January.

Despite my concerns in the credit market, stock and commodity values have crashed by more than 50% and at these bombed-out levels should now be gradually accumulated over the next 6-12 months.