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I have written a lot about looking down the road to what might be coming, then following the event as it starts to play out and thinking about portfolio shifts in that context.

One thing we all need to think about is that at some point the financial sector carnage will end. When it does it will make sense to go heavier into financials. This is not intended to be the usual shopping list nonsense that you hear about on the network every time the market drops 1%, but more about the idea that after what is shaking out as a real sector beat down, but that the group recovers at some point in the future.

The more serious you think the subprime/liquidity issue is the longer it is likely that it will take to unwind. I wouldn't think that if they rally in the next week that all the problems will be solved. While I have never thought this was apocalyptic, I will concede it could be serious.

Serious as it may be, it will end. A month, a year, I don't know but at some point. When it does adding to your financial exposure will be the right trade. Among other things the curve would need to normalize, time would need to pass and ideally a big company would need to fail. As nasty as that last one sounds a large failure is a good way to scare the market into a real bottom.

In that light it makes sense to think about where you might increase exposure. I have one stock in mind. I have learned the story, been watching the stock for a while but have a lot more time to study it before I buy. The name does not matter as it could change in the future, the point here is process.

The sector is in trouble, the trouble will end, and once it does makes sense that the more volatile names within will provide leadership. As a general idea increasing volatility at the start of a new cycle and then letting up on that volatility as the cycle matures has been a reliable pattern in the past.

To be clear, I think a trade is months away. I am simply looking ahead to what comes next.