Game Plan: A Clarification

Yesterday we said the following in our Game Plan piece: "We offer no predictions on what will occur in the future. In fact for all we know the market could experience a large rally making the violation of these levels moot. But for now we must assume a higher degree of probability that the market's direction at least in the short to intermediate term could be further down."

I want to clarify this a bit. The money flow metrics we follow along with the fact that structurally we are in a bear market raises the possibility that stocks will continue their current short term decline that basically began with Treasury Secretary Geitner's on Feb. 10. As such I think we have no choice but to be somewhat more defensively oriented during this period. Therefore where applicable we will look to raise cash with an eye towards reinvesting that cash at a future more favorable time from a risk perspective. The securities we currently have on our potential sell lists are investments that we anticipate will not participate as well on a relative basis to our other investments when markets start to advance again in the future.

There are two other points I would like to make:

1. Risk reward metrics making reinvestment compelling could come sooner than later depending on the facts on the ground. I think for example any unforeseen spark could lead to a significant bear market rally of 10-20%.

2. I think that from a market structure perspective at some point this spring we will form what will ultimately be considered the bear market low for this cycle. I think we are close to this time but perhaps not completely there yet. There are some very compelling things happening with both stocks and the economy that should ultimately lead to higher prices. Look for further posts on this topic in the future. So while I am shorter terms more defensively oriented, my longer term perspective is becoming increasingly more positive.

Hope this helps clarify things a bit.