As I wrote last week, if we had another bad Friday, the HEDGEfolios Timing Indicator would slip into bearish territory.   Obviously, that happened and the impact on the charts was very devastating.  For quite a while I was content to wait for stocks to strengthen and had a positive bias.  Last week’s crappy action blew apart the ability to remain bullish on many signals.  So until further notice, I am back to being negative.

No, not that “C” word. I am talking “Capitulation” and “Crash.”  Bulls love to tell you that capitulation is a healthy thing.  Sure enough, you will hear that crashes are good too.   Get used to it - the number of times that reporters will be uttering the “C” words in the near future will far exceed any rational explanation.  Crashes and capitulations are very rare events.  These terms should not be tossed around and applied to every decline to suggest that the worst is over.  However, I fully expect to hear Pisani and his contemporaries ask something like “have we seen capitulation yet?” or some variation of a moronic comment using the “C” word.

The usual image of Helicopter Ben has him flying around in a commercial Bell whirlybird. I think it’s time for an upgrade to the Super Stallion model (the helicopter - not the Chairman.) So instead of that wimpy little cartoonish model (the helicopter - not the Chairman), if you are into government intervention - this is the image that seems more appropriate.

For a long time, the Yen Carry Trade has lived under the idea that Japan’s economic change would precipitate moves in the Aussie/Yen Cross. Lately, I’ve been wondering whether the next shift will come from a softening or slowing of the Australian economy rather than growth in Japan. Please keep an eye on the currency market.

I’ve never been invited (and probably never will be) to Davos.  I love the World Economic Forum concept and the initiatives they pursue to improve situations such as health, peace and the environment. Getting the input of key political, economic and business leaders certainly makes sense, but is it effective?  The media coverage of this event is sickening and in the past, they have spent way too much effort talking about the deals being discussed and not enough on the excellent work of the WEF.   Each year, I watch and wonder what opportunities to solve, avoid or minimize problems are being missed.  If the economic and business braintrust that is centered there was so fantastic, you might wonder what happened last year. Did they envision the condition we are in? Did they do anything to minimize the damage?

One more time, I don’t give individualized investment advice. I will tell you that the time for positioning a portfolio is not when a crisis is happening. Today is tough (to say the least) and tomorrow may be tougher. But what makes it worse is listening to someone you do not know and who does not know you. I’ve heard enough experts opining that you should not sell into a panic. How profound!  From time to time, they even encourage you to take advantage of what they call “buying opportunities.”  They do not know you. Do you know them? Do you know their intentions? I doubt it.  I respect whatever you feel you must do with your portfolio.  If you cannot handle investment stress, I can certainly understand panicked selling.

I never supported the decoupling argument. As emerging markets “emerged”, investment gurus told everyone how important it was to buy foreign stocks and international ETFs. I have tried repeatedly on this website to point out that this is a bunch of crap, but who the hell am I? Over and over, I heard advisors suggesting that you should have 20% or more in international equities to diversify risk and simultaneously pursue great returns. Of course, none of those concepts were tested for many many years while the foreign markets went straight up and I suggested that I did not want any of you to be part of the experiment when the theories came under their first real test. The reality is that many advisors made a ton of money pushing this concept so of course, they won’t admit they were wrong. Instead of dealing with the risk, this new concept called “decoupling” was presented to assure you that shipping your capital overseas was safe even if the US started to suck wind. Now that the decoupling theory is undergoing its first test, I wish its creators great luck. So in advance, it will be easy to tell you that I don’t support the “recoupling” concept either. Recoupling? Yep - that’s a term for admitting that decoupling was never right in the first place. But instead of saying that, the smarties who wanted you to believe in decoupling for a while will have to come up with a new concept that foreign markets are in fact tied to the US and they are just now coming back together. For the record…The economy is global. Equity markets are global. Credit markets are global. Currencies are global. Decoupling never existed so if your portfolio management relied upon that idea, please protect your money.

There are no cheap solutions… ONLY CHEAP IDEAS! Listening to President Bush, you might think that the solution to the economy is cheap…only $800 per taxpayer. That isn’t a solution, that’s just a cheap idea. Worse yet are the cascade of moronic stimulus plans from any politician that is either running for President, used to be running for President, or might some day run for President or maybe the ones that just like to be on tv a lot. Regardless, don’t you find it amazing that the guys suggesting we need a stimulus plan to prevent us from going into a recession are the same people who spent most of last year saying that the economy was strong or in the best case, were just ignorantly silent? Where the hell were they? And why are they so smart now when they were so wrong and clueless before? Especially ironic (not really) are the politicians on both sides that pushed for easy credit to poor borrowers which fueled the subprime pursuit of the American Dream. Now, you can hear the newly enlightened who claim that not only do we need to freeze mortgage rates but now that we have this whole stimulus plan to play around with, let’s just give them some money. Because after all, as Senator Schumer (D-NY) says, any bailout plan that doesn’t address the root problem is insufficient. Since Schumer says the real problem is with the troubled home owner borrower, you can bet that the negotiations between the Dems’ Congress and the Republican administration will include some provision for subprime borrowers. What a wonderful bunch of economists we have running things!! The solution to the credit crisis brought on by cheap and easy debt was for the Central Bank to make debt cheaper and easier (discount window modifications, TAF, etc. etc.) How did that work out? Sadder still is the fact that most economists agree that our country has gotten into trouble with overconsumption (low savings). So what do the economists-in-charge suggest we need to do to solve the impending recession? Encourage more consumption and especially, let’s throw out a “stimulus” plan that is designed to give people $800 that they will spend as soon as possible. Now there is the usual Liberal vs. Conservative game playing trying to figure out how to best redistribute money they don’t deserve to be dishing out in the first place. Conservatives say we should only give a tax cut to people that actually pay taxes. What a concept! Of course, the Liberals think this is just not fair and stupid as well. I agree it is stupid but not for the same reasons they do. They think it’s stupid because poor people would spend the money much faster than rich “taxpayers” would. And after all, we need a stimulus to help people spend money that they didn’t earn as quickly as possible. I know you may think I am being heatless here… yep. But at least I am not being brainless.

I encourage you to reread what I wrote about the bond insurers in November. Click here.

I also encourage you to browse over my comments about the ratings agencies. Click here. And click here.

The capital adequacy issues of Ambac and MBIA et al coupled with the ratings agencies doing their job will precipitate a problem with immense consequences. The past two days is just a small foreshadowing in my opinion. I’ll be touching on this in a more detailed post tomorrow, but COUNTERPARTY RISK in all its forms and at all levels should never be taken lightly. And it has been and we will pay the price for it.

Last year, at the start of each month I discussed my assessment of the probable directions for key market forces (10-year Treasury, US Dollar, Commodities, Gold and Oil). I’ve been asked why I haven’t updated the market forces since the year began and it certainly deserves an answer. I wrote about these things for several reasons - mostly because I think they incorporate most of the aspects of the macro economy. Without an understanding of how everything fits together, investing in stocks is very difficult and I wanted to encourage others to consider all these factors. But one of the other reasons was to show some of the funds that I am considering to team up with that I could do more than pick stocks. That has been achieved and I’ve decided to suspend publishing market forces indefinitely. I still do the analysis every week to help me with my signals, but I don’t intend to make publishing my thoughts a regular feature.