The slow motion crash is over; start buying
I have been a bear since i started as a CAPS participant. I made my points betting the financials down, gold up...and then betting the shops down..and then betting the commodities down.
I think that a bearish stand is no longer warranted.
Stocks are cheap now. They are cheap for the first time in a decade.
YES, i think we will get a severe recession. No, i do not think it will become a depression.
I think however that in most of the cyclicals the recession is now factored in.
NO i do not think that the credit crisis is over. We have still a lot of bad credit to work through. And there are still many systemic risks at large with regards to the global trade in derivatives.
But i think a lot of that pain is already in the price of the financial stocks.
NO i do not think that this marks the beginning of a great bull-market. The technical damage in the market is to big for that. And the great dying season of hedge funds has only just begun.
But i think a signifact low has been formed. Two resistancepoints are of special significance.
The S&P 500 has not broken the low it made in the last bear market. That low is around 800.
The banking index (KBW) has not broken the low it made in july ..even though armageddon was declared in the financial markets.
Both have held in the last two weeks.
I do not know of course wether or not those lows will be broken. But it seems to me that it could well be that they will hold for the foreseeable future.
A rational strategy at this point is to begin buying the stocks of quality companies. Stocks you will want to hold a long time. Do not chase them. If the market rallies buy them at the new higher lows. If the market moves sideways, buy them everytime it reaches this bottom.
Only use a part of your capital. Work slowly.
If the market breaks through the lows that have been made in the last weeks wait till a new low has formed and buy the same stocks again. This time with more capital.
At this point in time this strategy cannot fail. It is not impossible that the S&P falls another 200-300 points. But because stocks are now so cheap they will over the next ten years bring easily 10% a year. Its possible that the next two or three years will yield much less. But that only means that after that they will yield more.