What To Focus On

“The Dow can’t fall!” they chanted in 1971. “The Dow won’t fall below 700!” they yelled in 1974. “The Dow will never rise above 850” they cried in 1981.

It seems that we are due for the same reorganizing of sentiment. In 2000 the Dow simply couldn’t fall. “Stocks are long-term investments. We will never sell! No recession can make us sell our childrens’ retirement money!”

Long-term story short, they sold. Why? Too many reasons. Primarily, because people don’t know what they’ll do, until everybody else does. That’s the way people work.

Ask the media back in March, when gold was making all-time highs, “Are you buying?” “Sure!” they’d all say, “Gold is the place to be”. Fast forward to September when gold down was down over 20% and ask around. It seems that while you’d reckon you’d have at least 20% more enthusiasm. Unsurprisingly, no.

The media is a lagging indicator. They get it all but they process it far too late. That’s the trouble with following the news, or in other words, the crowds. They’re like the under age kids trying to get into every party and then always forgetting to leave sober before the cops show up.

The Dow will lose value, lots, before this is all over. Recession or inflated-GDP, Wall Street Bailout or Main Street insolvency, when the good times move out of town it tends to take everything with it; jobs, earnings, anything that we’re used to going up.

Why, even recession-proof stocks seem to get pounded even harder, for speculators pile into those shares with more aggression. When they are forced to sell, “poof goes the proof”.

They say that when times are great its hard to loose money, while in bad times its almost impossible to make. (You can always short some shares, until the SEC comes and says you can’t).

The key is to hold tight, gold, short-term treasuries, foreign currencies, whatever have you, until capitulation sets in. Remember when the Dow fell 1,000 in one swoon and Wall Street was convinced we’d see it drop another 2,000? That’s capitulation. The markets recover and then crash back just to erase that last bit of hope that any speculator has for future price gains.

That’s when you buy. When even conservative investors are questioning their own sanity. When speculators throw in every towel, the baby with the bathwater. Even the likes of Coca Cola, Berkshire and Citigroup are out of ammo.

As for now, we aren’t even amidst the recession that analysts are pretty much 100% sure we will. Many banks have gone, but there are still quite a few banks and hedge funds that have got to go. Maybe a state bankruptcy in the cards.

It ain’t over till Joe six-pack is out of beer and you can buy a wonderful company at a wonderful price!


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