Critical Economic and Market Commentary: 12.17.08

Posted At : December 17, 2008 1:34 AM

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Market Commentary:
The markets continue to be dangerously volatile. As heart wrenching as it is, it is just what I’ve been expecting and have discussed in our updates, which is why I have been so cautious (and right). The world is going through a cycle of deleveraging and coming to grips with the widespread political corruption our nation as just gone through. However, the news is all bad, and that is just what is needed to bring in that final “Capitulation” phase which I have been talking about for a while that will make people throw in the towel and sell at the bottom. And that’s how it always happens.

For the first time in a while, I see some positives which I outline below. The key going forward is understanding the type of market we are in and having the right portfolio for the job. Yesterdays winners will likely be tomorrow’s losers.

There are 3 basic factors finally favoring the stock market:

1. Widespread fear and pessimism  You can’t find a Bull on Wall Street to save your life. Practically everybody in Bearish and feels it’s “obvious” that the market has to go down. Well, the market never does what “everybody” thinks. If it’s obvious, it’s obviously wrong!

 2. The Government Bailout is essentially a giant stimulus package  Like it or not, the amount of liquidity that is about to enter the economy is enormous and it will bump the economy significantly.

3. The news is still bad…no horrible!  Opportunities exist when everyone else is afraid to take advantage of them.  As much as it hurts, investors need to reposition their portfolios now to take advantage of the turnaround while the news is still bad. Nobody ever wants to buy when stocks are down, because that’s when you feel the worst, but you can’t buy low and sell high if you don’t actually buy when it’s low. The market is a barometer for the future, generally 9-18 months out. The “right” investments bottom and rally while the news is still bleak, well in advance of good news, while many of the old leaders do poorly.

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Let’s talk soon – Keith

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