A Long View To The Bottom

The markets didn't take too kindly to Mr. Bernanke and Mr. Bush talks this week, that is pretty much a gigantic understatement. The markets hated it...with a passion.

Bernanke, in his talks with Congress, basically admitted that it is time to push the panic button. He said that the markets need a boost and they needed it now and it needed to be a temporary boost. Rate cuts just won't hack it, they take too long to really float through the system. Normally a cut's full effect are not felt for 6 months.

President Bush then made his plea to Congress on Friday that the economy needed a stimulus package of 1% of GDP, roughly $140-$150 billion that would go to individuals and businesses to try to jump start the economy.

The markets absolutely plunged after Bernanke spoke. Basically it was an admission that all the rosy talk of avoiding a recession was just that, rosy. So, if Bernanke is saying the ship is sinking fast, there is no reason to hold onto risky investments such as equities.

So what can you expect short term? A lot of hand wringing by Congress, canindates, companies, and individual stock holders. If a correction is defined by a 10% drop in stocks, a recession is marked by at least a 20% drop right? So that means we are about half way there.

It is hard on everyone right now. And I don't think it is getting any prettier. Take a look at what MSN Jim Jubak has to say about the next financial crisis that is on the way. And not only is this a major concern. We saw yesterday the first of the downgrades on an insurer yesterday.

Bottom line, is that no matter how attractive some of these financial stocks look, such as Bank of America, which is weird, of Merrill Lynch or Citi, that are trying to clear their books and may be overdoing it. But if the insurers start to lose, then banks will have another big leg down. Stay away.

Basically, stay defensive. Gold is still good. Large companies will not feel the blows so much. Treasuries are safe. And EFT shorts such as DOG and SDS will perform well in the short term. But this can be a lot of work. If the market bottoms, things can turn quickly. If you are on a short, you have to keep your nose to the grindstone. But I think these are a good bet for right now.