GMR and Market Update Email Oct 15, 2008

This is an email I sent to my dad.

Subject: Market moved 20% in 2 days - another good chance to lighten up on stocks.

That was a nice bounce on Friday afternoon/Monday morning. Unfortunately I think that may be all we will get until election time. I will know more after tomorrow, but basically if we sell off tomorrow, I am expecting a continuation of the downtrend with new lows in site. A bounce tomorrow may give us a better opportunity for another rally higher, but after that, the next move is still to at least a double bottom of last week, but most likely to new lows. No need for us to try to time this thing perfectly. The prevailing trend is still down--by far.

I would suggest getting a lot of your stocks into cash this week with a plan of keeping it that way for awhile. You should have over 70% of your assets in non equity anyways (bonds, cash, land, homes, gold coins, etc) if you are within 10 years of retirement. Bonds are on the verge of breaking down too, though, so cash, money market, annuities, land, high yielding stocks (dividends), etc.

Stocks like GMR I see no harm in holding, as long as you are comfortable continuing to dollar cost average for the next few years (the dividend will do this for you as well). It won't be immune necessarily from a market selloff, but it should hold up better than the market in general and obviously has the ability to turn around quickly as we saw this week. Plus a 15-25% yield (which also equates to a 15-25% increase in your stake every year if you roll into purchasing new shares) will be incredible when the markets finally do turn. Anything below $10 on GMR is a firesale price. And nothing like cash continuously in your pocket.

Right now is not a time to worry about taking losses, etc; it is a time of preserving capital. Remember, the bear market of 2000 lasted over 2 years...this one is barely 1 year old and by most calculations this one will and should be larger than the one in 2000 (it already is by pretty much every measure); that implies at least another 20% down move from here to under $780 on the S&P500.

I am buying puts this week to capitalize on the next major down move. If you don't necessarily want to sell out and/or you want to try to capitalize on the next move down, then I would suggest buying some SDS, QID, or DDM. These are those ultrashort ETFs I was telling you about. They move opposite the market at a two times rate...so if you buy $10,000 worth and the market moves down 10%, then these things go up 20% providing you with portfolio protection. I would definitely suggest putting some of these in your portfolio, if nothing else but to add some insurance.

And finally, one thing to think about is there are already a lot of boomers who are closer to retirement than you are. I don't think they will be putting their money back in this market with the kind of risk they've taken the last year. That will be a BIG headwind for the upside in the next 20 years+. If they do, it will be at much smaller percentages of their total portfolio.

Sorry for the long email, but it is time to get bearish again...the rally after the bailout announcement in mid sept. was only 2 days long, and it looks like this one may only be 2 days long as well. There will be longer ones down the road, but unfortunately I think they will be at lower prices.

Buy and hold was a product of the 80's and 90's bull markets. It is not a viable strategy anymore.

Good Luck
Chad