LET'S FACE IT, our nation, our world is going---has gone---into a long-term economic contraction. How long it lasts---months, years, decades---is open to endless speculation. I for one think market contraction with spurts of trading rallies will go on for at least a decade, since we've been in a 40 expansion.As a student of the markets who is very fortunate to have several wise mentors, I have a few basic observations:
1. None of us should listen too seriously to the myriad talking heads. Period. Most are extreme and only play into our greatest fears and greeds.
2. The era of buy and hold with no thought of market timing is gone forever. We live in the age of short-term traders markets and for better or worse it requires much greater skill in hedging than the average retail investor can muster without a lot of support and re-education.
3. Investors need to invest and hedge many of their investments with options. If we don't know what that means, we need to learn. These markets are far too volatile to do otherwise.
4. For the more sophisticated investors, as much money can be made in down markets as in up. But the average investor doesn't work that way and usually only makes money in up markets and gets wiped out in downturns.
Simple and obvious but not easy. The best thing that could happen today---Friday---is for the market to go down more this morning, then turn around and begin to rally this afternoon ahead of the closing bell. The rally will probably go on for a while making lower highs, then lower lows.
Basically I agree with Marc Farber.
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