The Game Plan 2008

THE GAME PLAN 2008Last entry: 1.23.08

Six weeks ago we would have had to build arguments as to why a bear market case was building in the stock market; we don’t need to do that now. Everyone knows about the sub-prime woes, the trade deficits, the falling dollar, and high oil and food prices. Now investors and their advisors just argue about what it means to the economy and the stock market.

From our vantage point we cans say a few things; there has been no capitulation in the market because a bottom has not been established. A two hundred point rally in the S&P that we expect off the 1260 low is just a bounce in this environment. The first thing you as an investor need to put in your investment formula is that we are in a bear market that could last for up to three years. As such you want to error on the side of defensiveness-the market is headed lower over the longer-term time frames.

In the meantime you can stratify the market levels as to how the market should be treated and update these strata every 30 days. At the moment, basis the S&P 500 we would be looking at the following levels:

1260-1310 is an underpriced level

1310-1360 is approaching value

1360 is value

1360-1410 is approaching overvalue

1410-1460 is overvalued

How you as an investor incorporate this into your investing will be dependent on your style. We appreciate all styles, just stick to them. Investor s who wants to look past this three year period may just sell down to 50 percent long above 1410; Investors who are concentrating on this three year period will be getting short above 1410. Bottom line, do whatever fits your strategy.

As time moves forward we may discuss various strategies that we employ in our portfolio.

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