Ben Graham always referred to his “Margin of Safety”.

Many people have one. For Dare-Devils and Gamblers its 1/99 against them. For perfectionists, it must be 1/99 in their favor. Ben pretty much held of 3/2 in favor.

Simply put, he had to have three good reasons for every bad two (I think it worked).

Now let’s take a look at the economy:

Dow – Topped out or at least we’re getting very close. All-time high, those that haven’t made the list in 2000 just had their chance. The day the first economist comes out and says we’re heading for 12,500 – It’s over.

S&P and NASDAQ – S&P has had a 5-year Bull in its 600 Small Cap sector. As for the NASDAQ? I think it got all the cash it needed in 2000 to hibernate for a while.

Housing – I can’t even begin. Go read the news. Get the facts. It’s not a “slowdown” or a correction. It’s a disaster.

Commodities – still looking very attractive, trying to stay out of the spotlight, low sentiment, perfect for a rally no one was expecting.

Federal Reserve – These Feds don’t seem to be talking to each other much. Everyone’s saying something else, which I assume is not a good sign. Basically, from what I gather “We’re staying away from interest rates until the storm has run its course”.

Government – I quote Bernanke “The fiscal consequences of these trends are large and unavoidable.” He was referring to Social Security and the wave of Baby Boomers set to hit in ’08.

Personal Savings – All-time low, actually in the red. It’s practically non-exsistant. (and if the 401k’s crash?…)

Spending and Debt – Both Personal and Government, are at an all-time high.

Energy Prices – See Commodities above and if you think it’s over see previous post.

Bond Market – Many economists believe a lot of the Treasury buying is coming from investors overseas from countries that have been doing well – such as China, India, etc. But how long will it last?

I haven’t yet properly calculated the ratio, but I assume it would be safe to stay indoors. Stay out of US dollars and into something more comfortable (my Aussi cash saves me from doing my math (Wallet – Inflation = ?) scenario every 15 minutes). Or get into some commodity/currencies e.g. Gold, Silver. They ought to do well over the next few years.

Better safe, than sorry.

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