Twist And Shout...

The reason why I call this post twist and shout is because I am definitely about to throw my readers for a twist. The twist goes a little something like this:

I have recommended since last September/October that we MOVE all of our positions into Cash, and Cash-like assets (Treasurys,etc). And I mentioned we would hold those positions until we hit a relevant level that may help form a bottom. At this point, with the new Treasury secretary (Tim Geithner) delivering his plan for the banks TOMORROW...AND the Senate finalizing the vote on the stimulus plan TODAY I am under the assumption, that any hint of news (as minimal as it might be), may cause the market to start rallying in anticipation of both announcements. I would increase your exposure to the market however incrementally. At this point no more that MAYBE 25% of your CASH position should be used to take advantage of this situation.

Now here is the TWIST, I am resigned to say that we are purely taking advantage of what will probably go down as a BEAR MARKET RALLY. This simply means that there are pockets, during an economic downturn where the markets need a breather and goes in the opposite direction. And that direction would be UP.

But this will be short-lived and the hard part to determine is how long this BEAR MARKET RALLY will last. I will go out on a limb and say it the market top 9000 to head for the hills as I believe that it will be trading in a range for a long time. I know I continue to deliver news that you may not want to hear but I believe that once we hit those levels the markets will continue to decline until critical things are addressed such as unemployment, foreclosure, and failing banks.

Fact or Fiction

Freddie Mac and Fannie Mae were off roughly 45% this week.

- FACT: These are Government Sponsored Entities (GSE) that engage in mortgage purchasing and providing funds to mortgage lenders, respectively. Their stocks prices have tanked this week from fear of going bankruptcy. However pay close attention because many on Wall Street believe that some type of government bailout will be necessary to save these firms.

Inflation on the rise.

- FACT: Inflation or at least the fears that your dollar is stretching thinner and thinner continues to rise. Normally during times of inflationary concern, investors would flock towards a Fannie Mae, Freddie Mac or government bonds but that is not happening. Should you be concerned, YES, because you must follow the money and Wall Street is telling you to be concerned because the price of GOLD is rising, OIL has pushed through record prices, and ohhh I forgot the housing and auto industries are collapsing. Don't believe me, see the lastest story about Indymac, which became the largest US bank in history to be seized by the government.

You should feel good about the market, and keep holding on to your stocks.

- FICTION: Sorry folks for the first time ever my outlook is very dismal from here. If you are a gunslinger, then please at least hedge your portfolio against further downside risk. For the rest of us, continue to sell most of your winners, cut your ties with losers, and get defensive!!!

Your defensive plays are:

OIL : Problems in Iraq and Israel & Iran, disruptions in Nigeria and Russia ALL mean oil will continue to rise. I don't believe speculators play a big role in the price and I don't think the potential of domestic drilling will impact the short term price.
GOLD: Gold is on the rise and so are future prices, which means that investor faith in the dollar continues to decline.
CASH: Cash is always KING and have cash in your portfolio ain't always a bad thing. Wait out this storm, because it could be awhile.