CASH AND FETAL...We're very close!

One of the CNBC commentators answered when asked where people should be to be safe in these markets..."the only two positions I feel comfortable in at this moment are CASH and FETAL". Although this seems like a funny answer, and one we can all relate to it, the extreme sentiment echoed in it speaks to the complete lack of preparation that the general public took prior to the current market slide that began a year ago.

Good News/Bad News: The good news is that a multi month bear market bounce in an ongoing multi year decline is very close to starting, and it will be huge.. The bad news is that it is only going to offer temporary relief for the markets, as they reset to slide later in this "deflation and de-leveraging" cycle. So, develop a plan quickly to use the bounce to reduce exposure to markets you are too involved in, and start thinking about preservation of capital, rather than return on capital for the next couple years. Otherwise, what has happened to your portfolio in the last year will seem mild compared to what will happen to it in the next few years...assuming I'm correct.

In a rare scenario today, gold, oil, stocks, commodities, and currencies all fell at the same time. How can this happen to historically uncorrelated markets you might be asking? Well, when huge brokerages, funds, and banks all get into the same trades on the way up, and all get margin calls on the way down, and no one is there to take the bad stuff off their books, they have to all sell the good stuff that has created profits for them recently. So, they can't sell mortgages and commercial paper and derivative garbage, they must sell crude, gold, euros, google, aaple, and anything else that is liquid.

2008 year to date numbers are just out: 98% of all mutual funds are down this year! That has got to suck if you are holding any, including the 401k statements you coming to you this week or next. Those that have been following this blog have avoided thousands of points of decline, several bankruptsy events, enjoyed stellar profits in short periods of time in stocks, crude, euros, metals, ETF's, etc. While the markets were swinging all over the place, we have forecasted things to buy and sell. Just lucky? Well, absolutely, as long as you remember that the definition of luck is "when preparation meets opportunity".

At 10,482, the Dow is almost 4,000 points off it's Nov.'07 peak. Most indexes are worst off than that on a percentage basis. When the decline is over, somewhere out in 2010-2013, the Dow will likely have entered the 4,000-6,000 range and the Nasdaq the triple digits. OUCH! Must it happen? No. But, the odds are favoring that it will. Therefore, use any rally into the end of the year or early 2009 to prepare for the most devistating selling cycle in financial, real estate, and commodity assets since the 1930's. And if you think it couldn't happen again, that the government will save the system, that there are safeguards in the system that will keep it afloat, think again. That fantasy should no longer be part of your consciousness after the incompetance we've seen in the last several years.

Be safe and remember the only two positions of safety: cash and fetal. Feel free to contact me if you would like more personalized help with your situation. Stay tuned for the mark of "a" bottom.

For what it's worth,

Ken