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Swinging for the Fences

|Includes:Cisco Systems, Inc. (CSCO), IBM

If you've been following this blog, you're aware that I expect a major correction, if not a market meltdown, and feel my short positions will make for lucrative investments in the next year or two. On a personal note, most of my money is in cash right now, sitting in CD's which aren't earning too much interest, to take advantage of what I perceive to be a once in an eon market implosion that we haven't seen the likes of since the 1930's. The Ithaca Experiment Portfolio is exactly that, an experiment, but it is my own real money I'm tracking, and I could conceivably make a killing not only shorting the market to the downside, but playing the bounce on the way back up.

Market sentiment still remains bullish in many camps and not only do my short positions seem foolhardy from that perspective, but so do my cash positions if you're from that ilk. I keep hearing phrases from the guests on CNBC like: "You can't make any money by being in cash and bonds are overvalued so your best bet is to be in stocks.". Sure bonds may be overvalued but, I couldn't disagree more with the stances on cash and securities. If the market declines again, either in a slow and grinding rewind or by cascading downward off a cliff caused by high-frequency trading, being in cash would be your best bet because of preservation of capital.

The Great Recession is not over yet. In the August 7th issue of The Economist in an article entitled A Deeper Hole, the author states that "the recession was even worse than everybody thought" based on data revisions by the Commerce Department. The article goes on to say that: "These changes confirm the recession as the worst of the post-war years.". To give a historical perspective, the post-war years do not mean since the end of Desert Storm, but the end of The Big One, World War II. Sure, the Market lost considerable ground from late Summer 2008 to March of 2009, but that was only for a few months. Do you really think the worst financial calamity since the 1930's would be over in a blink of an eye? It has only been two years since the Fall of 2008, and if the 1930's or 1970's are any indication of what's to come next, we've only got more volatility to go. The trend is flat or to the downside.

I believe that many of the bullish analysts are too myopic in their assessments of the market with time horizons that go back only 20 or 30 years. Despite the crashes in the market from 1982 to 2008, you made damned good money by being fully invested in S&P 500 or DOW index funds with a buy and hold investing strategy. The NASDAQ is a different story, but you get my drift. Those days are over.

Let's not forget that the FED came out last week and stated the economy would be under pressure for the second half of 2010. That, coupled with bellwether global technology firms Cisco (NASDAQ:CSCO) and IBM (NYSE:IBM) saying that growth would be muted going forward for at least two quarters gives one time to pause. Who do you believe, the majority of CEO's that are giving rosy earnings estimates going forward? They have nothing to gain by being negative on the market becuse they are judged by the price of their stocks. Cisco CEO John Chambers is a straight shooter and has a track record making market predictions based on his perceptions of where the market is going by checking his channels of his well oiled machine. I listen to what he has to say very carefully. So for the mean time, it's steady as she goes.

Disclosure: No Positions

Stocks: CSCO, IBM