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From a story on Yahoo News.

A rising savings rate and an improved housing market, while not completely healed, point to brighter times ahead in the U.S. economy, O’Shaughnessy told Reuters in an interview.

“I do think that as all that coalesces, you see a good chance for the S&P 500 (at) 900 out of the year. What are we right now? 713? That could be a very nice rally,” he said, in reference to Wednesday’s closing level for the S&P 500.

Does he realize that we started this year at 931?  And while I agree with him that we could have “a very nice rally” I don’t think this is the time to be buying.  There’s too much downside risk that isn’t priced into the market.

For example as I detailed a few days ago, Standard and Poors is still estimating 2009 earnings for the S&P 500 to come in at $64.37 – a whopping 31% increase over the 2008 earnings of $49.04.  I just don’t see that happening, so stock prices will adjust lower as the earnings estimates are eventually lowered.

I also disagree with his premise that we’re seeing “an improved housing market”.  Foreclosures have been held down artificially for the past few months as Fannie and Freddie had a foreclosure moratorium in place, as did some states and banks.  Those programs will be ending, and we’ll see the foreclosure rate skyrocket as Obama’s housing bill turns out to be ineffective.

I say it’ll be ineffective because the only thing that will heal the housing market is a bottom being established on prices. And that can not, and will not happen until foreclosures are allowed to go through to establish the true value of houses in each area.  Any government program is bound to fail, because they’re seeking to establish another artificial boom.  And that’s what caused this mess in the first place.

A rising savings rate IS a good thing, but that doesn’t “stimulate” the economy as fast as someone purchasing a new car or remodeling their home.  Savings bear fruit in years, not months.

“The problem with today is everybody’s fighting the ‘Where’s the bottom?’ fight. If you try to keep a relatively longer-term perspective, which is three to five years, you get shouted out … From our point of view the market is even more compelling than it was when we spoke at the beginning of the year.

“Yeah, we could go down some more here in the short term, but it only makes the ultimate valuation more and more compelling.

No doubt about it, “you get shouted out” if you talk about a 3 to 5 year time frame – because it’s wrong.  If you bought and held stocks anytime since 1997, you’ve lost money.  In many cases, a lot of money.  And that’s not an investment.

“The market is even more compelling than it was when we spoke at the beginning of the year.”  He is 100% correct on this – but anyone who listened to his self serving BS at the beginning of the year has lost more than 25% of their money.  Not a brilliant move, no matter how “compelling” the market appeared at the time.

As to making “the ultimate valuation more compelling” he’s correct – but that’s been the case forever.  Look back at the beginning of this blog, where I said Doug Kass was wrong when he said “Buy the Financials. Yes Buy.” back in January of 2008.   The S&P Financial index (XLF) was over $27 back then, and he said it was a good deal with good valuations.  Today XLF closed at $6.24.  That’s definitely a more compelling valuation, but you would’ve lost 77% of you money if you bought XLF because of it’s “compelling valuation” in January 2008.

Long term investors shouldn’t be trying to pick the bottom – leave that to day traders.  Long term (I’ll use the same 3 to 5 year time frame as O’Shaughnessy) you simply buy when the 75 day EMA crosses over the 200 day EMA.  And you sell when the 75 day crosses back below the 200 day.  It’s easy.  And virtually foolproof.

Check out a chart of the S&P 500 with these EMA’s here.  When the red line (the 75 day EMA) is higher than the green line (the 200 day EMA) stocks are trending higher.  You buy as soon as possible after that happens.  The reverse is true in a down trend like we’re in today.  And the distance between the 2 lines is not getting smaller yet, so long term investors shouldn’t be anywhere close to buying back in.

In short, if the earnings are down, the market will follow eventually.  And when earnings rise, the stock market will also eventually rise.  But that ain’t happening now, so stay on the sidelines.

gk

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The latest numbers from Standard and Poors are even worse than yesterday.  Now, even Operating earnings are negative, not just as reported earnings.

Check it out here.  Link will open an Excel spreadsheet.

Notice the Operating earnings for Q1.  The total for the S&P 500 is now negative 56 cents.  As reported earnings are now down to negative $20.73.

And I just noticed that I’m even calling them “negative earnings”.  They are losses.

That’s why stocks are tanking.  Any questions?

gk

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Here are the top 10 news stories today from Reuters Business News as of 4:55 PM ET.  Notice a pattern?

• Wall St pulled lower by banks, S&P below 700 - 14 minutes agoStocks fell in volatile trading on Tuesday, with the S&P ending below 700 for the first time since October 1996 as persistent uncertainty about the amount of money needed to shore up the financial sys…
• U.S. auto sales plunge as recession deepens - 57 minutes agoU.S. auto sales dropped by more than 40 percent in February to the lowest level in almost three decades as Americans pulled back from taking on more debt.
• Bernanke defends AIG rescue, says U.S. had no choice - 3 hours agoU.S. Federal Reserve Chairman Ben Bernanke on Tuesday defended the government’s latest bailout of embattled insurer AIG, telling irate lawmakers that he was also angry, but that the failure to act cou…
• Blockbuster hires advisers for debt overhaul - 11 minutes agoTop U.S. movie rental chain Blockbuster (BBI.N) said on Tuesday it has enlisted lawyers to help it raise capital and refinance debt, but stressed it has no plans to file for bankruptcy.
• Ford February sales plunge 48 percent - 2 hours agoFord Motor Co (F.N) reported a 48 percent drop in February sales on Tuesday and outlined sharply lower production targets for the second quarter compared with a year ago in the face of a deep slump in…
• Geithner: will work with Congress on bailout costs - 1 hour agoAcknowledging that U.S. financial bailout costs may rise, Treasury Secretary Timothy Geithner on Tuesday said the Obama administration will work with Congress to determine the size and shape of future…
• U.S. home sales plumb record low in January - 4 hours agoSales of previously owned U.S. homes tumbled to a record low in January, reversing the prior month’s gains, according to a report on Tuesday that indicated the economy’s downward spiral was gathering …
• Oil rises nearly 4 percent on OPEC - 51 minutes agoOil prices rose nearly 4 percent on Tuesday on expectations producer group OPEC will cut output again and as stock markets traded higher.
• Bank of NY, Russia to discuss legal settlement - 3 hours agoThe Bank of New York Mellon (BK.N) said on Tuesday it will meet with the Russian government to discuss settlement of a $22.5 billion lawsuit Russia has leveled against it.
• Treasury, Fed launch loan program, eye expansion - 5 hours agoThe U.S. Federal Reserve and Treasury on Tuesday extended a new securities loan program to include equipment and vehicle fleet leases and said a future expansion to $1 trillion may also include some o…

There’s not a single bit of good news.  Everyone is ready to call a bottom to the recession, housing, financial crisis, and stock markets, but why?  There have to be at least a few positive signs that things are going to get better at some point, and I don’t see any signs of that.

Eventually, things will pick back up, but I don’t see it happening yet.  And I’m not buying stocks yet either.

gk

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You’d think that the “experts” would eventually learn, but when I scan the news lately, almost everyone and their brother is calling this the bottom of the bear market.  If they’re not outright calling a bottom, they’re saying “near the bottom” or something similar.

Just today I ran across these stories saying that we’re at or near the bottom in various markets.

• CNN – Have banks finally hit bottom?
• Reuters - Calif housing market may be near bottom: JPMorgan
• The Motley Fool – Amazon Calls the Market Bottom
• Zacks.com – Agrium Bid: Bottom for Fertilizers?
• The Wall Street Journal - Have We Hit Bottom? Answers Short and Long

That’s today alone!

I think they’re nuts.  They’re fruitcakes who haven’t actually taken the time to look at the numbers – or even a chart.  And as I see more people calling a bottom, I’m more sure that this isn’t the bottom.  When the bottom is truly here, almost no one will call it.  Including me.

I’m not pessimistic by nature, but I don’t see any signs of a bottom in any of the major markets.  The forward estimated P/E ratios are still sky high, and they need to drop.  P/E ratios go down either by lowering the price of the stock (the “P”) or raising the earnings (the “E”).

Since earnings targets are lower each day and still aren’t being met when companies report, I don’t see a scenario where the “E” is going up anytime soon.  That means the “P” must drop.

My conclusion is that this isn’t the bottom.

gk

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As if the past few years haven’t been proof enough, the recent plunge in stock prices may finally shut up the chorus of buy and hold investing proponents.  I’ve been saying it for a long time, but maybe hitting people in the pocketbook is the only way to make them understand.

Buy and hold is dead.  It has been dead since the tech bubble popped in 2000, but people just didn’t realize it because Alan Greenspan created the real estate bubble to replace it.

When the S&P 500 index peaked at 1527 in March of 2000, it took until May of 2007 to see those levels again.  7 years of “experts” preaching “buy and hold”, “stay in stocks for the long term”, “you need to be fully invested in stocks if you’re a long term investor”, etc, etc, etc.

The amazing part is that people listened to the “experts” – and followed their advice for 7 years of negative returns on their money.  I’ll put it another way.  If you put $1000 into the stock market in 2000, you didn’t break even until 2007.  0% return.

If you put $1000 into the stock market before or after 2000, you might have had some return on your money depending on when you invested, but you didn’t have much.

With the market close today, you’ve lost money if you bought into the stock market at anytime since April of 1997.  I’m no math wizard, but I know this is February, 2009, and April 1997 was 12 years ago.  That’s a long time to wait just to break even.

Since the late 80’s, I’ve followed a simple strategy that the “experts” kept saying was a losing strategy – I buy when the 75 day EMA crosses above to 200 day EMA, and I sell when the 75 day EMA goes under to 200 day EMA.

It’s an extremely simple strategy for long term investments like 401k’s and other IRA’s.  You don’t move in and out of the market very often, but you’re in the market when stocks are rising, and you’re out when they’re falling.

As a result of following this strategy, I got out of stocks in January of 2008 when the S&P 500 was still over 1300.  I didn’t get faked out by the false bottoms during 2008, and I’m still in cash and bonds.  My money is just setting there, waiting until the 75 day EMA turns back up and crosses over the 200 day EMA.

This strategy will beat the snot out of buy and hold, and it’s extremely easy to follow.  You can check out a chart of it here on Yahoo Finance.

Maybe the “experts” will finally shut up – or better yet – maybe people will learn to make their own decisions about investments.  When you do, don’t be surprised if you start realizing that the “experts” also don’t understand capitalism and free markets.  Read other posts in this blog if you’re curious about those subjects.

gk

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I posted this in a MarketWatch.com comment a bit ago and decided it was worth putting here.  This post was in response to another comment about the importance of having a long term (10 years) time horizon when investing.  I disagreed. 

Here’s the post:

So if you put $100,000 into the S&P 500 10 years ago (which is the timeframe you give) how much would it be worth today? On Jan 11th, 1999 the S&P 500 was at 1243.26. Today (10 years later) it closed at 870.26. You’d have about $70,000 left.

That’s a 30% loss over the past 10 years for “investors”!

I have read everything that Warren Buffett has written or said publicly. I read everything Ben Stein writes. I listen to Dave Ramsey daily. I understand where you’re coming from when you talk about investing vs trading. But you are living in the past.

Buy and hold only works when you’re in a bull market. Period. If you read Buffett in the late 90’s, he was right to keep billions in cash instead of “investing” in tech. He should have listened to his own advice. Because he was wrong (and lost billions of Berkshire wealth) when he bought into Citi and GE last year. I said so publicly at the time, and I’m still saying it.

I’m simply saying that buy and hold is dead. It has been dead since the peak in 2000. Those of you you disagree are down at least 30% since then, while those of us who move in and out based on long term trends are up at least 30% since 2000.

This may turn out to be a great buying opportunity – but I don’t think so. the S&P 500 earnings estimates for 2009 are still way too high at $81.80. In other words, S&P is STILL estimating that 2009 earnings will come in $16 HIGHER than 2008!

Anyone wanna bet that 2009 comes in closer to $40 than $81?

This aint rocket surgery.

gk

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It’s been a bad week for business in the Knoxville area to say the least.  Here are some headlines from just this past week:

Goody’s shutting doors after 55 years in business (800 jobs lost)

Sea Ray plant closing (575 jobs lost)

Officials ‘in shock’ as Alcoa announces layoff of 450 (450 jobs lost)

ImagePoint to sell business units (450 jobs lost)

Jewelry Television starts new layoffs (unknown – at least 90 jobs lost, rumors say up to 250)

That’s at least 2365 jobs lost this week.  There are gonna be some long lines at the unemployment office on Monday!

The national news isn’t any better.  The headlines today read:

Worst year for jobs since ‘45 (CNN)  and Job losses hit 2.6 million as layoff pain deepens (AP) and Jobless Rate Hits 7.2%, a 16-Year High (NY Times).

Now, someone please tell me just how in the hell Standard and Poors is still forecasting earnings for the S&P 500 of $81.80 for 2009?  That’s $16 HIGHER than the 2008 earnings!  I know 2008 wasn’t a great year, but lets face it – the layoffs didn’t really start until the 4th quarter of 08.  Well over 1 million jobs were lost in November and December alone, and 2.6 million were lost in the entire year.

So who does Standard and Poors think is going to be buying enough “stuff” to drive earnings higher next year?  What are they smoking?  I’ll make a prediction – 2009 earnings for the S&P 500 will be about 1/2 of what they were in 2008.

I bring all of this bad news up in order to show why I think stock prices are still too high.  Yes, stocks are about 35% cheaper than last year, but investors are always looking ahead.  Stocks today are priced based on those 2009 earnings estimates.  When those earnings start coming in below those estimates – look out below!

The DJIA closed at 8599 today, and the S&P 500 closed at 890.  My best guess (and it’s only a guess) is that the DJIA will drop another 40% or so to around 5000 sometime in 2009. The S&P 500 will go as low as 500.

Because the government insists on printing money like Zimbabwe, the dollar will lose value and we’re eventually going to get some high inflation – as in 15 to 25% annual inflation.  When inflation takes off, the earnings will appear to skyrocket – but they’ll be flat or even lower when adjusted for inflation.  In other words, I don’t think stock will give decent long term returns for quite awhile.

There will be rallies, and you can make money in stocks by playing these rallies, but the long term trend is still down.  My advice is to buy gold and silver.  This is gonna get ugly.

gk

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I don’t know what news people are seeing that encourages them to buy stocks.  I meant to post this last night but didn’t get the time, so here goes.

The DJIA went up over 500 points yesterday and I’ll be damned if I can figure out why.  I kept an eye on the news headlines during the day, and here’s what they looked like at 2:45pm ET – just before the market skyrocketed into the close.  Here are the top headlines on MarketWatch.com as displayed by my “My Yahoo” page yesterday:

· Intel, H-P, Dell lead tech-sector losses - 14 minutes ago

· Citigroup looks for a new fall guy - 14 minutes ago

· Economic clouds could thwart some Obama energy promises - 14 minutes ago

· Energy stocks flirt with gains in volatile session - 14 minutes ago

· Chrysler’s survival difficult without government aid: CEO - 14 minutes ago

· GE shares fall back to 1996 levels on financing-cost concerns - 14 minutes ago

· U.S. stocks bounce back some after hitting new lows - 14 minutes ago

· Shares of Citigroup, Bank of America sink to decade-plus lows - 14 minutes ago

· Treasurys steady after 30-year bond auction - 14 minutes ago

· Gold dips below $700 as traders take more money off the table - 14 minutes ago

And here’s what the topr Reuters Business news were at the same time:

Jobless claims hit 25-year high, imports plunge - 1 hour ago

• The number of U.S. workers drawing jobless benefits hit a 25-year high this month and imports suffered a record fall in September, according to reports on Thursday that underscored a rapid drop-off in…

  · Stocks cut losses; energy offsets tech drag - 36 minutes ago

  Stocks cut losses on Thursday, sending the Dow and S&P 500 back briefly into positive territory, as investors scoured the market for beaten-down shares, including those of energy companies, offsetting…

  · Top hedge funds see more rules ahead for industry - 53 minutes ago

  Some of the world’s richest and most powerful hedge fund managers told U.S. lawmakers on Thursday that they support greater transparency for the secretive industry, but offered divergent views on …

  · GE shares tumble, company confirms 2009 dividend - 1 hour ago

  General Electric Co (GE.N) confirmed on Thursday it plans to pay a dividend through the end of 2009, but shares of the U.S. conglomerate remained down sharply.

  · Goldman suspends GM rating, Chrysler urges aid - 53 minutes ago

  Goldman Sachs suspended its rating on General Motors Corp on Thursday and said the automaker needs at least $22 billion in federal aid, while Chrysler said it would be “very difficult to survive&…

  · RIM co-CEO says market environment is “intense” - 50 minutes ago

  The current market environment is rife with challenges and requires careful planning of strategy, the co-CEO of Research In Motion (RIM.TO)(RIMM.O) said on Thursday as an analyst warned that sales of …

  · Citigroup board says supports its chairman - 39 minutes ago

  Citigroup Inc’s (C.N) board of directors said it supports its chairman and a newspaper report that said it was considering replacing him was “completely erroneous.”

  · Oil rises 4 percent on OPEC, equity market rebound - 9 minutes ago

  Oil jumped over 4 percent on Thursday as OPEC seemed poised to cut production again later this month and equity markets rebounded.

  · Lawmakers challenge big banks on bailout funds - 36 minutes ago

  Senators asked the nation’s biggest banks on Thursday to explain how they are using the billions of taxpayer dollars provided to them under a massive government bailout program. The answers were m…

  · Qualcomm halts UMB project, sees no major job cuts - 11 minutes ago

  Qualcomm Inc (QCOM.O), seeking to cut costs in the face of slowing demand for cell phones, has stopped developing a next-generation wireless technology called Ultra Mobile Broadband and is making smal…

There’s not a single bit of good news hitting the wires, but yet the market reverses course and ends up almost 1000 points higher than the low for the day.  Makes no sense to me, but I don’t see anyway investors can continue to ignore the news that says earnings are falling dramatically.  At some point the “P” needs to adjust to the dramatic drop we’re seeing in the “E” in order to bring the Price/Earnings ratio back in line.

gk

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This needs to be read by more people, so more people can contact congress to let them know what they think of it.  I’ll post the reasons for my own thoughts later (I think it sucks!) but for now, here’s the text of the proposed plan according to the NY TImes.  Please read it and let congress know what you think!

gk

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY

TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for–

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.–The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.–The term “Secretary” means the Secretary of the Treasury.

(3) United States.–The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

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Does this sound familiar?  According to the story, Bank of America CEO Ken Lewis says “that he sees no need for the largest U.S. bank to raise capital or cut its dividend.”

I don’t know why, but it sounds like I’ve heard that before….  Oh yea, now I remember.  Citi Group said that on November 4th last year – then on January 16th they announced a 41% cut.

I’m too lazy to look up the details right now, but if my memory serves correctly, MBIA, AMBAC, Lehmann – and several other financial institutions have said the same thing over the past 6 to 8 months. 

Here’s a fun trip down memory lane.  Read this excerpt from Bloomberg dated August 28, 2007:  Moszkowskicut his estimate for Lehman’s earnings in 2008 by 22 percent to $6.80 a share. That compares with an average estimateof $8.14 in a Bloomberg survey of 19 analysts. He expects the firm to earn $7.07 this year.

Bear Stearns will earn $12.07 a share in 2008, Moszkowski predicts, more than $2 below the average estimateof $14.53. Earnings this year will drop to $11.86 a share from the record $14.27 that Bear Stearns reported in 2006, he said.

Lehman shares declined $3.47, or 6 percent, to $54.28 in composite trading on the New York Stock Exchange. Bear Stearns fell $3.78, or 3.4 percent, to $108.42.

“Merrill’s downgrade is a very good sign that these stocks will bounce from here,” said James Barrow, president of Dallas- based Barrow Hanley Mewhinney & Strauss, the sixth-largest Bear Stearns shareholder. “They’ve made many market-bottoms by putting stocks on sell lists.”

Obviously, Bear Stearns is now out of business (having been bought by JP Morgan for $10/share) – yet James Barrow said that the downgrade was “a very good sign that these stocks will bounce from here” when the stock was at $108.  I sincerely hope that no one listened to him.

How about Lehmann stock?  It was at $54 when this pronouncement was made, today it closed at $19.74.

Don’t you just love the way the market pros can call the bottoms?  (Umm, that’s sarcasm – no need to tell me I’m agreeing with someone who’s wrong.)

I’ve said it before, but it needs to be repeated because I’m tired of people acting like they’re surprised when the market – particularly financials – keep going down.  If you learn nothing else from these rants, please remember this:  Until the financials “come clean” and write off the majority of the toxic “level 3″ assets, they will continue to lose value.

These financial geniuses have leveraged sub prime and “alt-a” loans 20 and 30 times.  When even one defaults, the whole house of cards comes down.  I’m guessing – strictly a guess because none of them are providing accurate numbers right now – that the major banks have written down maybe 30% of the losses they’ll ultimately take.

In other words, this show ain’t no where near over – it ain’t even halftime.  I don’t care how many times Ben Stein says buy and hold, I don’t care how many times Doug Kass says we’re at the bottom, I don’t care if MBIA and AMBAC say they don’t need capital, I don’t care if Lehmann downgrades (or upgrades!) Merrill or Goldman – or vice versa.

Someone needs to say it – These companies are too highly leveraged.  Some will not be in business a year from now.  It’s true that one or two will emerge stronger, but I’m not picking that horse yet.  Better to sit on the sidelines (in cash or gold or silver) and wait to see who’s left when the dust settles.

Right now, I’m long Novagold (NG) strictly as a speculative bet on gold.  I’m also long on FXE – which is a “long-term-no-way-I-can-lose-on-this” type of bet.  That’s it.  Everything else is in cash and silver – real silver coins that I physically have in my possession.

I don’t have the balls to short financials right now – although everything I know tells me to.  Someone (don’t remember who right now) said something like “the market can remain irrational longer than you can remain solvent.”  Good advice, and I rarely bet short – or wager much on hunches.  The dollar going down long term is NOT a hunch.  In my book that’s as close to a sure thing as there is today.

If I had the guts, I’d short XLF from here – it closed at $19.36 today – and take my profits at $17.  But I don’t have the guts to do it, so I prefer to sit on the sidelines until there’s something I can go long on.

Maybe someday the buy and hold crowd – who have cost so many people so much money in the past 8 years – will shut up and go away.  I hope the same goes for those who keep calling bottoms in this bear market.  Buy when the market trends (when the 75 and 200 day EMA cross going up) are on your side – not before. 

Unless you’re a trader or speculator, in which case you don’t care what I say anyway.  Even then, I know traders who use technical indicators – but much faster than 75 and 200 day MA! 

Anyway, I don’t think anyone will get rich bottom fishing at these levels – and you could lose it all. Be patient, wait, buy when the market trend is in your favor, and you’ll be just fine.

gk

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