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The Federal Reserve doesn't need another excuse to cut interest rates, but the economic report du jour brought a fresh reason anyway.

On Thursday morning, the Census Bureau advised (pdf) that new housing starts continued tumbling last month. Privately-owned housing starts fell 14% in December to levels last seen in 1991. Building permits crumbled again last month, too. Since permits are considered a measure of future activity, the ongoing slide here casts a pall over the outlook for housing.

Mike Larson, a real estate analyst for Weiss Research, told that:

These figures confirm that the housing recession continues to deepen. Slumping consumer confidence and tighter lending standards have already taken their toll on demand, and the broader economic slowdown we're starting to see unfold now threatens to make a bad situation worse.

Adding to the gloom is the fact that housing starts fell by more than the consensus predicted. Based on a Bloomberg News survey of economists, starts were expected to decline to an annual pace of 1.145 million, but the actual number was far lower at 1.006 million.

The optimistic view on Wall Street is that a combination of rate cuts and fiscal stimulus via Congress will save the day. Perhaps, but even the Federal Reserve and the politicians in Washington can't wave a magic wand and make the bad news go away.

The market, it seems to us, wants to correct and needs to correct. After five years of nearly non-stop bull markets in almost everything, investors are again becoming acquainted with the laws of financial gravity. Yes, the market's already taken a hit since the highs of last fall and there's plenty of opinion that now says it's the time to buy the dip. The S&P 500 is down 13% from the peak. Is that all there is? We don't think so. The source of the selling in recent months has been economic weakness, and that's not about to stop next week or next month just because the Federal Reserve cuts rates and Congress votes to give taxpayers a $1,000 rebate. Those actions will mitigate the pain, but only a thorough correction will fully purge the financial system, and that purging may take longer than you think.

For our money, we're looking for signs of far deeper pessimism on Wall Street than currently describes the sentiment. The basic reason: we think there's more bad news coming, in which case more selling will follow.

Yes, we could be wrong, which is why we're nibbling ever so slightly at the dips in some asset classes. But time diversification seems reasonable for the moment and so our buying will be spread out over time, perhaps over the next few years. We don't know how long the dark clouds will hang over the economy, but we're confident the tough times will last through at least the second or third quarter, based on our reading of a number of economic statistics. It's taken years for the excesses to build up and so it's reasonable to think that it'll take, at the very least, a few quarters to unwind the problem.

Opportunities for buying on the cheap are coming, but we're not there yet. Patience and discipline are the priorities now for strategic-minded investors.