Salient Summary  
The markets had their best week in decades in November’s final days, and I am hopeful that the bottoming process has become more assertive. We are far from being out of the woods, and while I’m predicting another deep, scary plunge in early December* (and a chance for those who sold at very low prices to get back in cheap), I’m also expecting a nice year-end rally after that, and a spot of New Year’s cheer when you open your January statements. The Camarda staff has been discussing developing a market/sector timing system as an alternative to ISIS^®, and while I am reluctant I would like your views. Finally, the bad news for annuities keeps getting worse: on top of shaky guarantees, costs – mostly hidden – are rising to sop up insurance company red ink. *It’s already happened by the time this was mailed to you.
Stray Prize Bull Sighted in November Woods 
Heedless of legion orange-blazed hunters, a rare bull, young and proud, risked quick death running a short-shooting field in the days around Thanksgiving. Remarkably, these days marked the first five-day winning streak since July of 2007 – a time when the economy seemed bulletproof and the markets were still heading to record highs in October of ’07. In fact, the S&P 500 popped its best weekly return in 34 years. While there is little doubt beef is still on the short-near menu, it is comforting to the bottoming process play out – or at least, a strong, late-phase bear-market rally.
I can not help but reaffirm my conviction that we are at or near the bottom, and that stock prices will soon be clearly trending upward from here. Make no mistake but that the pain is not yet over. We will see vicious downswings, as early as next week, which will test our resolve and drive more investors to the false safety of the sidelines. This is the nature of markets, especially of brutal bear markets, and we are by no means out of the bears’ woods, or the messy effluent of what one expects to find there. But I do believe we are nearly out, and it helps to remember that bulls sow their crops in the bears’ fertilizer. In other words, bull markets begin in the last, worst ravages of the bear, and the shift is only comfortably clear from the safety of the rear view mirror; all appears doom while we still drive through the muck.
While (as always) I could be completely wrong about the short-term forecast, I remain resolute that stocks now trade at a mere fraction of their value, or the prices they will be trading at in a few years, and that those who go to or stay in cash or other “defensive portfolios” will be crushed by the mega-inflation sure to rain from the printing-press monetary (and soon fiscal) policies required to avert a global recession seriously flirting with depression. I think the last will be avoided, but at the inevitable cost of a de facto if not official devaluation of the U.S. dollar, along with the rest of the world’s major currencies, all of which are similarly exposed and inexorably linked these days. Real assets – shares of companies, property, or commodities in the ground or in the vault – will prove the only antidote to an inflation not seen since pre-war Germany’s. But I digress. In the short term, the siren call of the “protection” of cash, or government bonds, will compel all and prove irresistible to some. Stock prices will gyrate, commodities will bounce between Heaven and Hades, and real estate will continue to dive, perhaps until 2010 or even 2012. The economy – the global economy in which we now all swim – will suffer at least until the end of 2009. Things will look – be – bad for the economy, for a long time. But the markets will get better lots sooner, as they nearly always have in the past. Those that heed this will do better; those that don’t, won’t. For those who hope to ride the sidelines and jump back in once it is clear the markets are headed back up, know that this is mostly a loser’s game, even for those with both great skill and extraordinary luck. Getting in and staying in is a surer path to wealth, though it looks like a fool’s path in times like these.
Now for the most-dangerous short term prediction.* On the heels of last week’s Turkey Rally, I’m looking for a pretty scary plunge down in early December, followed by a strong year-end advance, fueled in part by better than expected (though still pretty bad) retail sales numbers. *I wrote this Thanksgiving weekend, and by the time the email got out on Tuesday, much of the feast had been regurgitated. I’m still expecting more indigestion before the tide again turns by year end.
Market Timing ISIS^® System 
A number of clients have wondered if Camarda should develop some sort of market-timing system, whereby we would try to predict – guess – what the markets will do in the short term, and make portfolio changes accordingly. For much of this year, as the markets plunged, this has been greatly debated by Camarda’s Portfolio Board and practitioners, and the vigorous debate continues. Possible approaches range from total timing – let’s get completely out this week and back in next week – to the so-called “core and satellite” method, where most of the portfolio stays strategically allocated, but we try to time general or specific markets with a small percentage, like 5-10%. If we get the timing right – and our market calls over the years have been pretty good – we can add a little (satellite) or a lot (total) value – but if we get it wrong we can also lose a little or a lot vis-à-vis the market averages. While some have said our calls (like the real estate and stock markets tops of 2006 and 2007, respectively) are excellent, I am very reluctant to do this, since my many studies over the years consistently conclude that the vast majority of advisors who attempt this eventually get it wrong, with unfortunate results for clients. We will continue to debate this, and I encourage client input. If we do it, it will be an alternate portfolio system, elected by client choice, with the appropriate risk disclosures. For the nonce, the working project is called “normalized equity markets Integrated Strategic Investment System,” or “nem-ISIS.” The pun is entirely intentional, and rendered in kindred spirit with those who point out that ISIS^® spelled backwards is “SISI.”  Stay tuned.
More Annuity Trouble 
It keeps getting worse for annuity investors. An article in the 11-25 WSJ proclaims that insurance companies are ratcheting up the internal costs on annuities, especially the “variable” sort that wrap life insurance features around what amount to overpriced mutual funds. Bad enough that new contracts will boast far higher costs and much watered down “guarantees.”  Worse still, and unmentioned by the article, is that internal costs on existing contracts will rise even beyond current usurious levels, probably to the contractual maximums embedded in the many pages of prospectuses and policy legalese which define these hideously complicated and expensive vehicles. The reason?  Life insurance companies are bleeding from more orifices than even the banks, and must apply countless tourniquets as they struggle to survive the economic sinkholes that have sprouted, like pox, everywhere.
Your input is requested on the market-timing item mentioned above – or any other subject you’d like to discuss. Call, write or email us with your thoughts, concerns or questions.