Here We Go Again

I am already tired of the word subprime as it is the villain everyone is blaming for the markets troubles of late. My take is this. All of the pundits are talking about how subprime is contained and I believe on the one hand they are correct. What is causing the market to tumble is fears surrounding the huge derivatives markets and the proverbial shoe that might drop at any moment due to some exposure held by one of the large investment banks, or one of the thousands of hedge funds out there. Remember that hedge funds are unregulated and have found a myriad of creative ways to increase their leverage many times what you and me can do as retail investors. Think Long Term Capital Managements meltdown a few years ago and the revelations of the extent of the leverage they were employing. The market is anticipating that all of this volatility will expose another LTCM type debacle. There are all kinds of rumors out there to this effect right now.

I liked Warren Buffets comments last night in an interview with a CNBC commentator. He said that you would be fine owning US stocks, if you were in it for the long term, which of course he is. He made fun of his or anyone else's ability to predict where stocks would be next week, or next month, but he said over time, they will be higher. Of course the 64 million dollar question is, how long is that? If you took that attitude in 1998 and held on to your Enron, Cisco, Lucent etc, then you have endured some mind numbing losses, and anyone with half a memory is not interested in doing that again. That market was radically different than this one, with P/E ratios significantly higher than where they are today. This is not 1998.

For me, I am patiently biding my time and trying to limit my exposure. I sold some GR this morning when it rallied and bought it back on this dip. I really like buying it down here, but then again......you get the picture.

The CEO of mortgage lender Countrywide made a veiled appeal to Gentle Ben last night to cut rates, which you know is what the Fed does nearly every time we have trouble like we are experiencing. Again I reiterate that Gold should do well in this type of scenario. Inflation pressures are building, not waning, caused by the low interest rate environment of Ben's predecessor. Thus a fed cut in my opinion only exacerbates this situation and makes gold an even better buy. Keep in mind though that if the market gets feeling like we are heading into a recession (which I do not), then they will sell gold like they did two weeks ago. Secondly, with the indiscriminate selling we have seen, they sell everything, not just stocks. For me, I bought some AUY and some GLD and will add twice as much on a dip of a percent or more.

I also bought some USG a few minutes ago at 47.16. The market is acting like we arent going to build anymore houses in the next few years because every subprime buyer is now locked out of home purchasing. This stock is down 11 bucks in two weeks....subprime woes or not, this is overdone.

Watch the 1350 level in the S&P and the 12000 level in the dow to a lesser extent.