Buy Stocks?

I am going to make a very bold statement. The source of my “madness” is 50% educated hypothesis and 50% gut instinct. You’ll understand why I call it madness in a moment.

We all know that while stocks like to trend together, they don’t copy each other exactly. Each follows its own business plans, sales, customers and respective wacky technical charts. On the day of the Great Crash in 1929 there were a number of issues, however few, that actually went up in price. The general trend does not concern each stock. One of the prime reasons that the indexes have been falling is because in each financials weigh heavily.

Nevertheless, it is important to realize that while some stocks set in a major bottom in 1982, others did so in 1978, many in 1975 and a few in 1971. Some swam against the tide altogether.

I believe we are experiencing a major bottom in financial and homebuilding shares. This does not mean that they have bottomed yet but the formation is in the making and we are merely a sharp decline away. Nor does this mean that they have sound books or have written off all their losses – far from it. It does mean that the coming panic (double-bottom) will place banking and home-developing shares at prices and valuations that are simply the lowest they can possibly be discounted. I suspect this may happen in as soon as they next few weeks.

Next, a bottom may set in for one sector that has dominated trading desks for years. Can you guess? Technology. Shares of Retailers, Financials, Homebuilders, Manufacturing, you-name-it have fallen over recent months. But some have held up reasonably well – until now. I think that during the major bottom that I expect sometime in late 2009 will offer bargains in some of the names that investors crazed over 10 years ago – Microsoft, Cisco, Apple, IBM. I think even Google will be selling itself unfavorably.

The key is: Safety and Earnings. I am extremely cautious on the banks not only with concern to their own solvency but more so the solvency of the system and the Central Banks to prevent it. If the financial crisis over blows heavily to the point where balance sheets are no longer legible, I would retroactively suspend my case for the Financials.

As for the Homebuilders, I think that very soon a great opportunity will be upon us and investors who look just a few months passed the carnage and bad earnings reports will see a solid balance sheet with a sound business model.

As for everything else, make sure when the market swoon comes, not only have you read the financial reports, but you are ready with trucks rented.

As for now, you want to be in Cash. But there’s a catch to cash – You don’t want to own currencies as they are just as subject to getting slammed as the banks that trade them. The best currency to hold is gold and silver. Sure the Franc, Aussie and Yen may rally too, but nothing will compare to the rush that will influence the greatest price increase (relative to time) in this Precious Metals Bull Market.

There are few currencies that will be safe from inflation – and not the CPI – but rather real family-oriented price-increases. SaraLee has just reported that they will have to hike the price of meats up 20% by year end. Many companies will follow suit.

The commodity that will most probably emulate that increase is Gold. Retail investors are well aware of its characteristics and it seems that, as predicted, small speculators are beginning to catch on as well. Gold seems to correlate very well with fear, to which inflation (read: falling dollar) will greatly contribute.

At that time, whenever it is upon us I’d say: Sell Half your Gold, and Buy Some Bargains! And Buy with Care! This is going to be the best buying opportunity in 35 years!

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