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Recently, someone emailed inquiring why I am so negative and wondering if I have any long ideas that I was interested in. Well, there are a few companies that I have looked at, that I think are a strong franchise. Keep in mind that this is not an advice column and I cannot and do not give advice here, hence I don't mention these companies. In addition, and even more important, I don't buy them. The macro scene globally, and particularly in the US, Europe, (and to a lesser extent, Asia) is abysmal, and it is getting much worse by the day. The trend is down, and sharply down. Why would I want to try to bottom fish or go long in a market where everything so obviously pointed downward? I liken this to trying to ice skate uphill. While technically possible, it is improbable and definitely not the best use of my talents, resources or time. A bear market can wipe out your portfolio, and if you buy in at the wrong time, will require up to, and over a decade just to break even. Look at those that bought at the top of the tech bubble. Those that bought at the top of the real estate bubble may do even worse. Most people who buy in to extreme swings to the upside (read as bubbles), usually buy in at the top, where most of the damage is done on the way down.

Let's take a look at what has happened over the US holiday weekend:

  1. ACA monoline insurer misses deadline on forebearance from creditors, may go into receivership
  2. gets its much deserved lowering of its credit rating from BAA, devaluing thousands of debt securities it insures along with it (this is a semantics game, the securities are intrinsically worth just as much now as they were last weekend, at least in regards to exposure from Ambac as a counterparty.)
  3. MBIA and several others are threatened the same as above
  4. The smaller reinsurers that back the primary are having their ceded coverage written down, some which is written down to zero!
  5. The party will really begin when everyone realizes that these guys all incestuously reinsure each other, and they are all sick.
  6. The financially engineered, off balance sheet vehicles of many corporations are blowing up.
  7. Housing inventories are at record levels.
  8. Housing prices are dropping at record rates.
  9. Despite this, most housing is as compared to incomes and income growth - thus is overpriced, even after historically record drops
  10. that, most housing is overpriced in comparison to historical rental yields.
  11. Most housing is overpriced as compared to the real cost of building and demand.
  12. We are coming off of the greatest risky asset bubble since, or even before the US Gold Rush
  13. Financial companies world wide are taking record write downs and losses, quarter after quarter ''
  14. Number 13 ain't gonna end no time soon!
  15. Credit markets are freezing up
  16. Overpriced residential real estate is not moving
  17. Overpriced commercial real estate is coming up for refi from short term loans and the market is not receptive at all
  18. There are more commercial properties with cap rates below the risk free rate than at any time that I know of.
  19. The US consumer is tapped out and spent, overloaded with debt and unable to drive the global economy at the unsustainable rate that it has over the last two bubbles.
  20. The Asian and European economies that depended on this stretch and strapped US consumer will disprove the decoupling nonsense theory and lead the world into a global hard landing.
  21. We are already in recession
  22. We are already in a bear market
  23. Believe it or not there is still a majority of positive sentiment screaming buy on the dips at CNBC and this and that stock or industry is oversold and so and so is undervalued...

I can go for some time here...

On the day we celebrate Dr. Martin Luther King's birthday...


      PRICE   CHG   %CHG      

Belgium 3540.02 -155.11 -4.20%
U.K. 5686.20 -215.50 -3.65%
France 4856.43 -235.97 -4.63%
Germany 6932.79 -381.38 -5.21%
Italy 34413.00 -1340.00 -3.75%
Netherlands 431.98 -18.10 -4.02%
Norway 450.93 -22.69 -4.79%
S.Africa 25533.32 -1119.34 -4.20%
Spain 13056.40 -599.00 -4.39%
Switzerland 7360.30 -331.68 -4.31%
Sources: Dow Jones, Reuter
Asian stocks echoed the weakness and closed sharply lower, with Hong Kong’s Hang Seng Index and the Shanghai Composite Index falling over 5 percent. Wall Street stock index futures tumbled too -- with Dow futures down more than 350 points -- but the effect of plummeting futures would have to wait until Tuesday as the U.S. market is shut for the Martin Luther King, Jr. Day holiday.
8:29 am EST

      PRICE   CHG   %CHG      

Australia * 5630.90 -168.50 -2.91%
Hong Kong * 23818.86 -1383.01 -5.49%
India * 17605.35 -1408.40 -7.41%
Indonesia * 2485.88 -125.25 -4.80%
Japan * 13325.94 -535.35 -3.86%
Pakistan * 13850.03 -24.51 -0.18%
Philippines * 3152.30 -16.00 -0.51%
S.Korea * 1683.56 -51.16 -2.95%
Sri Lanka * 2387.93 5.60 0.24%
Taiwan * 8110.20 -74.45 -0.91%
Thailand * 766.53 -23.14 -2.93%
Sources: Dow Jones, Reuters

Now, I have a choice of being net short, hedged long, naked long, or in cash. I have been over 100% short and bearish for quite some time now, with the anticipation that at least 70% of the companies that I am short will no longer be going concerns within 8 fiscal quarters. Last year, cash actually beat the major indexes. This year it will be even more exacerbated. Which would you rather be in this environment, long or short? Remember, don't try to ice skate uphill!!!