Jerusalem, Israel

If you're bearish on the stock market like me then it's always hard to sit on the sidelines or remain under-weighted in equities when the market surges. That's the case now following Thursday's big rally in world markets. But you have to stick to your guns if you truly believe we're in a dangerous environment.

The S&P 500 Index is still down about 2% this year and the MSCI World Index is down 8%. The highest quality bonds, including investment-grade corporate debt, have rallied more than 3% in 2010 acting as safe-havens amid recent market turmoil. Gold has rallied 11% this year.

But some of the largest and most defensive blue-chip stocks belong in a diversified portfolio – even if you're bearish.

Avoiding the stock market altogether isn't a good strategy; buying high quality companies that pay above-average dividends and that command a defensive posture in bad economic times can still yield some fruit.

My favorite defensive stock is Procter & Gamble (NYSE-PG). This mega blue-chip stock is the equivalent in trading parlance to an aircraft carrier; she's not the fastest ship in the fleet but she's mighty hard to sink and takes time to change course. PG is up more than 5% in 2010, including dividends, which were recently raised again.

Procter & Gamble trades at just 4% below its 52-week high, which has been rather narrow due to its conservative nature. But the stock commands an effective dividend yield of 3.20% and has a history of boosting its payout, which I like as an investor. More than 50% of its sales are derived outside of the United States.

In May as the S&P 500 Index sank more than 8% suffering its worst month since February 2009, Procter & Gamble declined just 1.6%. The stock provides conservative exposure to the consumer non-durables sector accompanied by much less volatility than the broader market.

I continue to hold the lowest percentage of stocks since 2000. I do believe we're in a secular bear market with major headwinds ahead for global investors, including financial market reform, tax hikes in the United States, massive structural deficits diluting economic growth and great danger as it pertains to growing sovereign government credit risk. I'm very bullish on volatility and chaos in general.

But P&G is a stalwart. If you want some equity ownership and you're bearish on most stocks consider P&G. I think it's the best defensive company in the world right now.

Have a good weekend. See you on Monday.