Well folks, it looks like we’re doomed.  (I don’t really believe that, but I know some of you have wanted more variety in my themes!)  I’ll take the doom-and-gloomer’s tack for a minute: The markets continue to prove treacherous, with nearly every asset class seemingly sinking to the bottom in lockstep. Even gold – which one would expect to go through the roof in a storm like this – is only trading Friday at about $750, well under the March 2008 peak of nearly $1,000, and not even close to the inflation-adjusted 1980 peak of $2,450 (4% inflated 1980 dollars.) Everything’s down.  There is no place to hide.  Even cash – so comfy and balming – gives only false hope, the next class to crash once the trillions now being printed and airdropped into economies by governments across the world finally awaken an inflation monster the likes of which we have not seen in over a quarter century.  Investors and consumers around the world seem finally to acknowledge a deep global recession that will leave no country untouched and change world commerce in dark, unknown, and very fundamental ways. We might as well admit doom and resign ourselves to the worst, as it seems everyone else has, and hunker down for the duration.
Is that dark enough?
           
Of course, there is no doubt that things are very bad economically, and will get worse before they get better. And, of course, stock markets “know” this and respond by plunging prices. But it is helpful also to remember that the markets usually lead the economy by a considerable margin – both down and up – and that this bear market began dropping over a year ago, while the picture of economic recession only became apparent a month or two ago.  It is overwhelmingly likely it will yet again “inexplicably” soar whilst we are still bemired in blackest economic despair.
           
It is impossible to predict when the tide will turn, and when investors will start jumping on the crazily low prices securities are now trading at, as they inevitably will. I still think we are see-sawing through a bottoming process, and think we may even see a vigorous post-election relief rally, as has frequently been the case in the past. There certainly is enough emotional compression in this race to expect a big, “Well, at least we finally know” reaction.
           
But if not exactly then, then sooner or later, and the real trick is to still be in when the tide turns, as the rise is usually rapid and emotionally unappreciated until prices have moved.
From today’s (10/25/08) Wall Street Journal:  “Bear markets often end not in capitulation but stupefaction…you are more likely to see a unicorn in your backyard [than to know when the market’s bottomed and gotten ‘good’ again.] …After the 1974 market bottom…without a moment’s warning, the bull woke up and took off… By Jan. 6, 1975, the market had shot up 10%, and a year after that the Dow had risen 54% from its 1974 low.”   Have a look at that period on the S&P chart below, compare it to the present, and see what you think.
 

 The folks who get out near the bottom – after listening to the drumbeats of doom on TV for months before finally throwing in the towel – tend to be the same ones who sit on the sidelines in cash for months, watching the good news and the recovering stock market bud and blossom. Once they’re comfortable that “stocks are good again,” they miss much of the gain, and buy what they used to own, but pay far more than they sold it for last time.
 
           
More news:

• Kim is cancer free!  You will all be happy to learn that Kim’s PET scan this week showed zero evidence of cancer. It looks like the chemo knocked it all out – and with her working like the dickens for you at Camarda the whole time!  We also celebrated Dylan’s 5^th birthday October 24^th.  Some of you may recall he was born nearly two weeks after his due date on the same day as his grandmother Joyce, who so eagerly awaited him but who sadly passed away before Dylan’s birth.

• Portfolio Board scrutiny - The ISIS^® results continued to outperform the markets through the end of the second quarter*, we’re happy to note, continuing the long track record of proven results despite the secular bear market we have endured since March of 2000. This under the various hands of Portfolio Managers Jeff Camarda, Joe MacHatton, and Kim Camarda. The third quarter results, while respectable during this time of incredible volatility, were not as impressive, and as Chief Investment Officer, some weeks ago I initiated a study into why this may be and what changes – if any – we might want to make going forward.  We have brought on board Mark Del Pezzo, CFA, who has a very distinguished track record, and who recently was managing several billions for VyStar. Mark will be taking the place of Tim Schick, who is no longer with the firm.

*Refers to the Capital Appreciation portfolio, which is nearly 100% stocks, with a track record dating back nearly ten years.
 

• Tax Alert!  Like salt in the wound, many mutual funds will be declaring capital gains distributions this year, meaning taxes will be due on funds that are way down for 2008.  This happens because funds sold positions for a profit this year, even though the funds themselves are in the doghouse, a bit of tax accounting madness that stems from Congressional compromises made during the Reagan “Tax Reform” era.  You may want to warn your non-Camarda-client friends, but most of you who participated in Camarda’s Tax Watch program this year should be pretty well covered, as tax losses booked over the summer should offset much, if not all, of the gain. These should be enhanced when the Tax Watch trades are unwound later this year. 

While this year’s capital gains rates are as low as we are likely to see again in this lifetime, you may want to request a Tax Position Report from Joyce Eason, our V.P. of Portfolio Accounting and Trading, to review with your tax advisor in order to refine your planning. Payout estimates for 2008 are already available from most funds, and we can inform your tax advisor how to get this information.
 

• Life insurers slipping into the fray - As we suspected and reported to you recently, many of the large life insurance companies have been feasting at the same poisoned trough as the banks, brokers and the rest of the porcine herd. While I have not yet seen much information on how deeply insurers’ balance sheets have been tainted by sub-prime and other tarnished paper, some very big names – including Met, Prudential, and New York Life (one of the most highly rated U.S. companies, though ratings have begun to prove unreliable) – have formally requested capital infusions from the Feds, including the sale of stock to the government. While there is not yet cause for alarm, this is definitely not a good time to seek investment safety by putting cash into “guaranteed” life products like annuities and cash value life insurance. Getting insurance for insurance’s sake (I’m not canceling the $6M I’ve got pending with Prudential) is another matter, though it is always prudent to spread the risk by diversifying policies over different companies. Hopefully, this crisis will at least finally produce a much-needed Federal regulation of insurance, instead of the bewildering patchwork of state law that now reigns.

So, enough with the doom and gloom. We may not have traveled down this exact road before, but from a distance, the bumps and dips and rises aren’t quite so distressing. We always encourage you to contact us if you need some reassurance or information, and you know you can reach me at the office at 904-278-1177, or on my cell at 904-813-5034.

I know you must be getting tired of my frequent emails, but in these dicey times I feel an especial duty to keep you informed. Warren Buffett has written for today’s New York Times an important op-ed piece, echoing many of the themes I’ve been talking about for the past couple of months.  It makes for brief but extremely valuable reading, especially for those of you who have or are tempted, to shift gears and go more conservative, or even to cash.  Here it is, I encourage you to read it.  – Jeff Camarda: 
Buy American. I Am.

By WARREN E. BUFFETT
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
(from &&http://www.nytimes.com/2008/10/17/opinion/17buffett.html?_r=1&ref=opinion&oref=slogin

The pounding continues, as we twist and cycle through the worst bear market since the 1970s.  Rest assured, there will be more heart-wrenching plunges – and breathtaking rises – as this process grinds toward its end, and it will be hard for anyone to tell when the trend has turned. Hopefully soon, but it may drag on for awhile.  The markets are clearly reacting to the prospects of a grim global recession.  How grim it may get is still open to question.  One useful historical point is that the markets tend to be a “leading indicator” of the economy, meaning they react in advance of economic direction:  going down before the economy really tanks (exactly the case this year), but shooting up well before recessions’ end (let us cross our collective fingers).  In other words, we should expect the stock markets to get healthy a lot sooner than the economy does.
           
Also, here’s an early warning on life insurance company products called annuities.  The annuity salespeople will likely be coming out of the woodwork in this crisis, hawking guarantees and safety, and forgetting to mention commissions and surrender charges, both of which in many cases can evaporate wealth faster than the 2008 Bear.  But my warning today has to due with the quality of life insurance company guarantees. Remember two things: life insurance is regulated by the states, not the Federal government, and no significant bailout is in the cards for them – the various state failed insurance company backup plans would be overwhelmed in short order if crisis comes.  This happened on a much smaller scale in the early 1990s when companies across the land ate too many junk bonds, and policy holders had to wait years to get back part of their “guaranteed” money. Secondly – and I have not heard much talk about this yet, but I think it is only a matter of time – insurance companies make their money by feasting on exactly the same types of investments that have turned toxic and ruined so many banks and brokers already. The high stress of non-performing assets will be exacerbated by losses associated with payoffs on stock-market-related guarantees that these companies never expected to have to pay, but also never should have made.   If you have annuities now, you may want us to do a quality check.  If you are thinking of buying some, be very careful, and feel free to run them by us if you have any questions at all.  Underneath the glossy brochure with “Guarantee!’ and “Safe!” (in 50-point type), lurks a dark jungle of uncertainty and danger which you should protect yourself from.
 

The Doom at Markets’ End
And comes again the darkness to the pocketbooks of Man…
 

The ancient, nameless Fear has stirred again, inexorably conjured by collective humanity’s incessant supplication to the god of Boundless Greed.  Fear again comes stalking, marauding, toppling the pillars and befouling the ruins of the high temples of Wall Street. Mindless, slithering, reptilian Fear, littering the steps of the halls of the once-mighty Masters of the Universe. Sullying and pulverizing the marbled brightness of the Olympian ideal and of Adam Smith. Driving the husks of once proud investors, great and small, to furtively scurry for their shrinkingly monetized souls, their shattered dreams, and the inescapable misery of threadbare retirement. Weeping and mourning the certain ruin of their progeny and hope, the promise and plans they had for their seed and their love, their dreams…
No, the markets have not finally driven me mad, and while I was really enjoying the craft of writing the above (it’s been 100 years or so since Lovecraft and Howard perfected the then-called “weird” – now horror – style of writing of which mine is but a thin shadow), I sense that you have had more than enough (and that’s after Cary cut 2/3 out!), so…
I use it to get your attention, because the economic upheavals of the early 20^th century – culminating in the Crash of ’29 and the Great Depression – both illuminated Lovecraft and Howard’s writing and now seem to inspire many of our early 21^st century video pundits, some of whom might probably better serve their fellows and their country by shutting up, or being assassinated by Treasury as a matter of urgent national security.
I think you desperately need another perspective.
There is no question but that we are on the brink of fundamentally transformational economic change, as a nation and as a species.  Great danger and unparalleled opportunity beckon.  We must all hark the hushed hoof beats (there I go again) of the hidden future, parting the tea leaves and “studying the dust,” as Dylan had it.  In times like these, we must be especially careful whose hoof beats we heed, for clowns cloud every corner, and the truth is hard to discern.  Be careful who you listen to.  For instance, years ago, before his crowning as Clown Prince of the (Mad) Money Media, Kim and I dubbed Jim Cramer “the wrestler,” back when he was still with Kudlow.  Here are some recent pronouncements of the Prince, which got a whole lot more play than what we, or even Chairman Bernanke, had to say:
“No! No! No! Bear Stearns is FINE!  Bear Stearns is not in trouble…Don’t move your money from Bear. That’s just being silly!  Don’t be silly.” 
                                                               Jim Cramer, 3-11-08 on Mad Money
Bear was effectively dead within weeks…
            “Mr. Cramer told his audience to buy Wachovia, calling it one of only a few potential winners in the $700 billion bailout…”
                                                                                    The New York Times, 9-30-08
            Wachovia was effectively dead within days…
            “It’s time to buy, buy, buy…”                      Jim Cramer, 6-13-08 on Mad Money
                                                                                                                                
We agree, but no comment on how this fits with his other rantings, like…
            “Whatever money you need for the next five years, please take it out of the stock market right now, this week.”
                                                            Jim Cramer, 10-6-08 on The Today Show
                                                                                                                                
Who’s being silly now, Jim?
In my book, Cramer is a carnie. You can add disingenuous (and I’m being kind) after his ebullient (and clearly paid) endorsement of at least one questionable investment guru, because Jim clearly knows better, or at least he did once.  Make no mistake, Cramer’s a ratings-and-advertising-revenue-driven entertainer.  That’s his business now, and he surely got out of the investments business to become the Hulk Hogan of Hype because he’s lots better at one than the other. 
Of course, Cramer is not alone, just a focal point of a data system gone Mad, or at least out of touch with the currents (these days, torrents) of real information which we should all heed.  For instance, the video media have lately made a big point about General Motors, unfavorably comparing its share price now to its levels before the 1929 crash.  Is GM really worth just the same as it was back when horses were real competition, before the explosion of America’s golden age? I call that eighty years of disinformation in a before-the-commercial sound bite. Absent from the quick “hit them in the gut” discussion was any mention of the meteoric rise (and gushing investor profits) of the once-and-fallen global King of the automotive industry: the stock splits, the dividends, the spin offs, mergers and joint ventures, the ’57 Chevy, the Corvette, the heyday of the Suburban, all of the great mid-century rise and slow stall from unions and mismanagement that have brought the King begging.  A lot of people made a ton of money before and since GM began its slow death decades ago, after decades of incredible dominance.  For instance, the stock rose some 500% from the Nixon administration to the second Bush; it’s in the toilet now, but deservedly so. The company was ruined by unbridled labor costs and persistent, incredibly arrogant and stupid management, and anyone who looked could see it coming for years.  But all the video geniuses had time for was to scare senior citizens into seizures with a few fearful words and the flash of an old stock certificate.  To hear them play it, the idiots who bought GM are now only break-even after nearly a century.  Please. Comparing the stock price (or the company) then to now is the worst kind of irresponsible journalism.
                                                                                    
I am actually, perversely, getting excited about what the markets are now doing. The opportunities popping up everywhere are beyond belief, and vast fortunes will be made in the years to come.  You must force yourself to hang on if you want to share in it.  Selling at today’s prices – the opposite of buying when you should if you can – could not only rob you of what I think may become one of the greatest bull markets of all time, but  selling now could lock in punishing losses from which you will probably never recover, changing your life forever. Going to or staying in cash carries another risk now, besides missing out on the huge rebound that I believe is inevitable, even if it takes awhile to get here.  The other risk is that the massive, unprecedented worldwide governments’ liquidity injections – which I fully expect to restart the global economic engine (but it will take time, effects are never immediate) – are hyperinflationary, which would drive the value of dollars to dust for those who hold cash.
Fear-driven investors are throwing great securities away with both hands, eager to sell at any price, fair or no.  How cheap have things gotten?  By one measure – the cash to price ratio – stocks are already as cheap as they were in 1932.  This ratio tells how much cash the company holds per share of stock, and about one in ten stocks now trade for less than the breakup value of the cash alone!  For example, if Charles Schwab was liquidated tomorrow (and we are not predicting that!), investors would get $1.32 in cash for each dollar of stock – plus whatever the significant other assets, like buildings and securities and their profitable operating businesses – would bring. Gosh, what a fire sale we’re having!  Why are stocks the only thing the public seems to want only when they are not on sale? 
Is the “capitulation” – the tipping point where mindless fear rules; when even most of the wise sell; and that typically marks the bottom of severe bear markets and the beginning of new bulls – here yet?  Possibly, but I think not quite yet.  Though I think we are close – and I would not dare to bet on getting out now to buy lower later – I expect we still have some rough water ahead. Mindless and overwhelming as the selling has been, many investors are still hanging on.  When most of these finally give in and blow out, then at last the corner will turn and the bull will begin anew.  And what a bull!  The opportunities that already abound, and the vast fortunes to be made in the aftermath of this will amount to a once in a century bonanza, for those that are, get and stay in.  I pray you can muster the courage to cleave to that small cadre of iron-willed investors who will stand pat and reap the tremendous treasure that’s waiting up around the bend, while most of those who let their fear consume their reason go hat in hand.
Stay strong, folks.  Take cheer from Monday’s enormous rise.  While there will be some inevitable turbulence ahead, I think we are getting through the worst of it. 

The streets are slick with blood…just how bad are the markets?
I had a nice chat with an old friend and client, Tom, just last week.  Tom’s been with us since the beginning in 1998, back when we went by “Camarda Brothers,” and since, as he said, “It was just you and your brother and your mother answering the phones.” 
In fact, Tom and Sandy invested with us right before the last bear market – the Great Crash of 2000-2002 – rode it down without complaining (much), and then enjoyed the fruits of their intestinal fortitude, as stocks started shooting up again in 2003, a bull market that continued for nearly five full years.
Tom posed an interesting question, on a day when we had a gut-wrenching 300 point drop on the Dow, the day after a 300 point gain.  “Jeff,” Tom asked, “have you ever seen the markets this volatile?”
Now, this marks my 5^th bear market since I got into the investments business, but my initial reaction was still a knee-jerk, “No, I don’t remember ever seeing it this bad, but I’d better have Tim check the data just the same.”
Sure enough, when I asked Tim to check this the next day, his answer was, “The volatility is pretty much identical to the last bear market.” 
My point here is that human nature seems to always overweight the present – good (This time is different! Real estate can never go down!), or bad (This time is different! Stocks will never go back up!) – and discount the wisdom of past experience, even when we should know better, like I should have when I answered Tom’s question.
Our intellect tells us that bear markets always end, that stock markets pretty much always rebound and go higher in the future. Our guts, however, often scream “Doom! Sell before we lose it all!” during the bad times, especially like now, when stocks have been in decline for nearly a year, and when the popular media seems only to want to offer up a constant barrage of “everyone knows…stocks will keep going down.” This kind of “news” sure keeps viewers tuning in, but the reality is that no one knows the future direction of stocks, but the smart money (like Warren Buffett) is looking to buy when prices are down and stocks are unpopular. The smart money buys good value and stays in, because it especially knows it is not smart enough to call the turn when things start shooting up again, and knows it can not afford to miss the tremendous upside that builds, blindingly, while the less-well-disciplined are sitting on the sidelines, waiting for the media to tell them the good times are back.
So the first point is, we must control our emotions to act rationally, because when it comes to investments, our emotions usually lead us to disastrous decisions. Our gut-level, hard-wired, fight-or-flight instincts tend to play havoc with choosing right action when we deal with extremely complex, protracted systems. Tim Schick really crystallized this well recently when he said, “The market is like the devil, always trying to get you to (act on instinct and) sell your soul.”
Let’s try to assess the current situation, in the cool light of reason, and try, for a moment, to ignore the bear gnawing at our entrails.
The second point is that the markets have been falling for about a year, meaning we are a good piece through the current bear market.  It speaks well of Camarda’s ISIS^® risk control systems that many of you have not really felt the pressure of the bear’s jaws until recently, and then relatively gently (though it seems far worse). Some of you have even told us, “Well, we’re not happy being down, but we’re happy we’re not down nearly as much as our friends who are not at Camarda.”
It is important to underscore that this bear market is actually getting pretty long in the tooth, now.  Stocks have been falling since the peak in October 2007, as we predicted in our various communications to our clients.  It may be over very soon – as I personally believe (more below) – or it may linger for awhile.  But it will eventually pass.  When it does, odds are overwhelming that stocks will shoot far higher, to new records.  Always has this been the pattern in the past.
So how bad is this bear?  Are we hearing – as the popular press seems to daily pucker and blast – the trumps of economic doom? So our guts say, as the market has been falling for a year, and been extremely volatile.  But when it comes to daily percentage moves in the S&P for 2008, this one is not even in the top ten since 1928.  And not only did we survive all those others, but stalwart investors made a ton of money.  Another way to look at this is to consider the CBOE’s Volatility Index – the VIX – which the New York Times nicely coins as “the investor fear gauge.” While high now, the VIX was far higher from 1997-2000 (the last great bull) and 2000-2002 (the last great bear). Fear is here, to be sure, but nothing new, and not necessarily cause for concern, as FDR reminded us so long ago, in a far darker and more threatening time.
There are several reasons I expect we are close to the bottom of this bear.  As bad as the swings have been lately, we are still at about the same level we were at back in early July – no lower.  The markets are retesting the midsummer lows, but not plunging deeper.  We have been here before, just this season.  A sharp difference between now and midsummer is another classic hallmark of a bear market bottom – fear is rampant in “the streets,” “everyone knows” stocks are going lower, the hair salon stalls are abuzz with whispers of financial Armageddon, and everyone seems to want to give up and throw in the towel.  In investing, as in life, things seem to turn just when the outlook appears darkest, and the popular outlook is now dark, indeed. A final point is that the S&P is still lower than at its peak in March of 2000, nearly nine years ago. We now look to be in a long term “secular” bear phase (and it’s nice to know that Camarda clients have done very well during this time despite this) similar to the 1970s (the oil shocks are probably just a coincidence), and lasting about as long.  Take comfort in the fact that the post-70s bull market beginning in the early 1980s and running to 2000 – almost 20 years of aviation-grade high-octane bull – was the most spectacular and profitable on record.
Of course, this great wealth-genie of a mega bull market was not without its bumps – the Crash of 1987, the 1980s  real estate bubble melting into the government S&L bailout (remember the hundreds of bank failures and Resolution Trust? I bought my first rental house in Orange Park in 1991 for $32,000, and no one else bid! You couldn’t give real estate away, or borrow money– just 17 years ago), the first junk bond meltdown, the first Gulf War, the Asian – then Russian – debt crisis, the implosion (and government bailout) of Long Term Capital – great beheaded king of the hedge fund hill – and the many other “end of the world as we know it” economic volcanoes whose lava we managed to rise above, all in the midst of the amazing prosperity most did not appreciate until it was history.  And that was a relatively mild period, as I think the present is, also. We have only to invoke Hitler and an entire world at war, or the nuclear precipice of backyard bomb-shelter days of the Cold War, to remember real danger, and real fear: what would a victorious Axis, or the desolation of a nuclear aftermath, have done to commerce and investment?  What gut-churning fear must have clawed at the souls of investors back then?  Were you among them?
The failure of Lehman Brothers and the sale of Merrill Lynch (just like A.G. Edwards, Dean Witter, Paine Webber, E.F. Hutton, and so many others before them) really don’t mean much when you put it into this context.
Always the bumps have passed, with those that stayed the course waxing far richer than those that retreated to the “quiet desperation” of guaranteed vehicles like CDs and Treasury bonds, to be slowly consumed by the insidious acid of taxes and inflation, like the famous frog boiled in a pot of cold water,  reincarnated as a bean-diet Wal-Mart greeter. 
I know I have been singing this song for many months now; please forgive me, but it is an important message, especially now, when investors’ very financial souls are at stake.
Be strong, stay the course, ride it out.  Not for me, or Camarda, of course, but for the absolutely sacred trust of your financial security, and your family’s.
Winter will end, spring will come, and the world (and your net worth) will green again. This old, ever-changing world remains at its core the same. It is our courage and wisdom in reaction to its kaleidoscope changes that define us, and which charts the bounty of our future.
Don’t let the primal fear take control, or sell that out.

As with oil and water, oil and the markets have proved to be immiscible … at least at the current level of oil.  While the phenomenon of demand destruction is real – the idea that a higher oil price will, in part, quell its own demand in the way of a negative feedback loop – the timing is such that other things will be destroyed as well, first.  Currently, the single largest other casualty has been the overall economy, worldwide, as the inflationary head of oil has significantly crowded out business and consumer spending on a non-discriminatory basis.  The credit meltdown, of course, has only served to exacerbate this dilemma, as the housing, construction, real estate, and financial service industries have fallen completely off the table.   
Frankly, I think the latter issue (i.e., the deleveraging of balance sheets on a wholesale basis) is a much more significant problem – with longer range implications – than is the price of oil; however, it’s the price of oil that continues to steal most headlines as investors seem to be playing an inverse relationship between oil and the markets.  Proof of this is the fact that the market is putting in the pilings of a bottom as we speak, while oil is now cracking to the tune of nearly 20%.  Natural resource stocks are similarly skidding down the pad, nicely complementing the government orchestrated slingshot in financial stocks.  Note, however, that the recent move in financial stocks is partly a technical one – attributable to the crackdown on naked short selling in the shares of large financial firms – while natural resource companies are still trading at the cheapest end of the market. 
 Many believe the emperor of the financial sector has yet to be completely disrobed, and that the write downs we have witnessed thus far are only half of the total amount to be expected before all is said and done with.  Frankly, I can’t say either way, because I’m not a banking analyst.  That said, even the most plugged-in specialists can’t say for sure, because (1) the variables are complex, and (2) the visibility is that poor.  What the data can tell you, though, is that Q2 earnings for the S&P 500 will come down nearly 20% year-over-year, marking the fourth straight quarter of earnings compression.  If Q3 does the same thing to earnings, it will mark an all-time record in a string of profit declines, year-over-year.  Mind you, I wouldn’t be surprised if this came to pass, because the power of positive comparisons (against poor prior year numbers) won’t exert itself until Q4, at least.
 Given such poor visibility and uncertainty in oil, investors have all but fled to quality and cash.  Certainly, there’s always something left to sell, but the premise of my letter here is that there’s plenty to buy, here as well as higher.  During bear markets in particular, risk is usually defined by buying what everybody else has already sold, but when you really think about it, much of the risk has already been spoiled by others.  I can confidently say that the best time to buy – and conversely, the worst time to bail! – is when the street is spilled with blood and when the outlook is specious.  And at times like this, it’s not so much about being smarter than everybody else; instead, it’s about having the courage to purchase while others simply watch.  Rest assured that, if you’re invested in ISIS^®, your assets are properly deployed.     

As with oil and water, oil and the markets have proved to be immiscible … at least at the current level of oil.  While the phenomenon of demand destruction is real – the idea that a higher oil price will, in part, quell its own demand in the way of a negative feedback loop – the timing is such that other things will be destroyed as well, first.  Currently, the single largest other casualty has been the overall economy, worldwide, as the inflationary head of oil has significantly crowded out business and consumer spending on a non-discriminatory basis.  The credit meltdown, of course, has only served to exacerbate this dilemma, as the housing, construction, real estate, and financial service industries have fallen completely off the table. 

Frankly, I think the latter issue (i.e., the deleveraging of balance sheets on a wholesale basis) is a much more significant problem – with longer range implications – than is the price of oil; however, it’s the price of oil that continues to steal most headlines as investors seem to be playing an inverse relationship between oil and the markets.  Proof of this is the fact that the market is putting in the pilings of a bottom as we speak, while oil is now cracking to the tune of nearly 20%.  Natural resource stocks are similarly skidding down the pad, nicely complementing the government orchestrated slingshot in financial stocks.  Note, however, that the recent move in financial stocks is partly a technical one – attributable to the crackdown on naked short selling in the shares of large financial firms – while natural resource companies are still trading at the cheapest end of the market. 

Many believe the emperor of the financial sector has yet to be completely disrobed, and that the write downs we have witnessed thus far are only half of the total amount to be expected before all is said and done with.  Frankly, I can’t say either way, because I’m not a banking analyst.  That said, even the most plugged-in specialists can’t say for sure, because (1) the variables are complex, and (2) the visibility is that poor.  What the data can tell you, though, is that Q2 earnings for the S&P 500 will come down nearly 20% year-over-year, marking the fourth straight quarter of earnings compression.  If Q3 does the same thing to earnings, it will mark an all-time record in a string of profit declines, year-over-year.  Mind you, I wouldn’t be surprised if this came to pass, because the power of positive comparisons (against poor prior year numbers) won’t exert itself until Q4, at least.

Given such poor visibility and uncertainty in oil, investors have all but fled to quality and cash.  Certainly, there’s always something left to sell, but the premise of my letter here is that there’s plenty to buy, here as well as higher.  During bear markets in particular, risk is usually defined by buying what everybody else has already sold, but when you really think about it, much of the risk has already been spoiled by others.  I can confidently say that the best time to buy – and conversely, the worst time to bail! – is when the street is spilled with blood and when the outlook is specious.  And at times like this, it’s not so much about being smarter than everybody else; instead, it’s about having the courage to purchase while others simply watch.  Rest assured that, if you’re invested in ISIS^®, your assets are properly deployed.   
 

To say the markets have been breathtaking – in the absolute worst, kicked-in-the-stomach sense of the word – would be an understatement. It is a scary time, but not, I think, the end of the markets as we know and use them. I can not be certain that we are near the bottom, though I am inclined to think so. Tim is nearly convinced of it, based on his study of current trends in sigma – volatility – and other of his arcane quant arts.
            Whether we are right about the precise bottom or not – and we often are right about these things, as you may know from reading Wealth Advisor™ over the years – in the end, does not really matter; bear markets always find bottoms, and blossom into glorious bulls, usually just when sentiment is darkest and “everyone knows” that the road to financial Hades is paved with securities accounts. What really matters is how investors behave in times like this: if they give in to the primal fear and sell at a horrible, net-worth-destroying time, locking in losses from which they can never recover, or if they are able to muster the FDR/Churchill-style courage they need to overcome their reflexes and act in their long-term interests.
      This is a hard thing, when the fight-or-flight instinct kicks in. Here are some facts to help you keep your perspective.
      The first is the ISIS^® long-term track record of risk control, demonstrated over many years to protect our clients from the worst of market downturns, preserving value while market averages and other investors do far worse; for our equities investors, this track record is unblemished even in the current crisis. For instance, we have delivered impressive returns in the stock markets since our inception in 1998, after all fees and expenses, and with a good deal less drama than has been the experience of the average investor. Consider: “We’ve been in a bear market for years; the Dow was almost 600 points higher in early 2000 than it is today…Exactly 10 years ago, the Standard & Poor’s 500-stock Index was at 1164; it closed Friday at 1239. That’s an annualized average return of 0.63%. At that rate, it’ll take you 111 more years  to double your money in the stock market¹.”  Fortunately for you and us, Camarda Financial’s clients have enjoyed far better returns, actually pretty extraordinary when you consider what the markets have really been doing.
      The second encouraging point is the kind of profits we can look forward to, if history is any guide. Bear markets always turn, and produce truly breathtaking (in the best, make-your-fortune sense) profits, and based on the length of the current malaise we should be close to the end of this one:  “In the last long bear market, 1969 to 1982, stocks returned just 5.6% annually…That mauling by the bear made stocks so inexpensive that over the ensuing 18 years they went up 18.5% a year, enough to turn $10,000 into more than $200,000¹.”  The essence of ISIS^® is to control losses during bad markets, but not sacrifice the upside when things get good again. So far we’ve proven ourselves very good at this², and this bodes very well for our clients as we build the base for them as the next bull market beckons.
      The third and last point is that things are probably not nearly as bad as the mainstream press seems to be making them out. The U.S. economy is holding up amazingly well, considering the body hits – tanking housing market, asphyxiated credit, souring fuel costs, rising unemployment, declining real wages/soft job market, low dollar, and so on – it has taken for many months now. It is wonderful and noteworthy that our stock market – hit though it has been – has proven to be one of the strongest in the world this year, and that U.S. companies are proving to be  some of the most undervalued jewels around, as evidenced by the recent successful pursuit of Budweiser by the Belgian InBev. There are many points of hope and light if we have the eyes to see them, but I will leave you with this, since Greg by now will be screaming I’ve used too much space: it’s now been two years since the housing market peaked, and no less than Barron’s is calling a real estate market bottom this week, right on the front page.
¹ Stop Worrying, and Learn to Love the Bear. Take It From Graham and Buffett, These Miserable Markets Are A Gift From the Financial Gods:  Wall Street Journal July 12, 2008; Jason Zweig
²9.85%, Capital Appreciation Portfolio, 1/1/2001 – 12/31/2003. 

You need to have a good idea what the money is for, and deploy it with the goal in mind.

 If your savings – or a part of them – is for a specific near-term expense, like a wedding, house or kids’ college in a year or two, you need to treat it differently than that for retirement a decade or more off.

 This does not mean you can’t dip in if life’s changes and emergencies demand it – as long as your investment selections are “liquid” (instead of locked up in something like a limited partnership or un-traded security), you should be able to cash out, even if the timing is horrible and you take a loss.

But it does mean having a plan beyond “making a lot of money,” and allocating your various investment “pots” to match the uses and times for which you intend them. And it does mean reasonably sticking to such a plan, unless emergencies or your own changed goals, make changing the plan necessary.

It is for this reason that Camarda clients receive a detailed Investment Policy Statement for each “pot” of money under our care, and have the opportunity to update it at least annually. You should do the same, whether you do it yourself or get outside help.