LOOKING FOR VALUE IN ALL THE WRONG PLACES (March 19, 2007): If you listen to or otherwise digest the mainstream media, there has been a lot of talk lately about "looking for value". It is odd that one never hears this term when the stock market is moving higher; presumably, in a bull market, one can just throw darts and make money. But as soon as a correction is underway, you immediately are treated to a lengthy parade of analysts explaining why you should get out of one particular equity sector group and into another. Or else you should supposedly buy certain "quality" shares that will perform well "no matter what the market environment".

You've heard of looking for love in all the wrong places. This is looking for value in all the wrong places.

The truth, which is almost never mentioned by the mainstream media, is that when we are in a bear market or even a correction, virtually all sector groups will decline. Some will fall more than others, but only a tiny percentage of equities will rise during a market downturn--usually between 1% and 2%. The media doesn't want to say "get out of equities", since that would alienate their advertisers. Therefore, they pretend that if you are in the right stocks, you will come out ahead. But since even a true stockpicking genius cannot hope to find the 1% to 2% of equities that will actually move higher, it is a losing game. And even if you do magically find those few shares which eke out gains, you will likely earn a lower total return than if you had just put your money into a completely safe short-term U.S. dollar time deposit during the correction.

Therefore, don't fall into the trap. Don't go "looking for value" in a correction or bear market. When a ship is sinking, you shouldn't look for the safest corner of the ship--you should be looking for a lifeboat to get yourself off the ship as quickly as possible.

Once your favorite sector group has reached a multi-month low, then it will indeed be time to be looking for value. That is when everyone else will be panicking out of the stock market, selling left and right. Whenever it is time to buy stocks--or any asset, for that matter--the problem should always be an overabundance of excellent choices that are available, so that you have trouble selecting among all the incredibly undervalued bargains. If you have to strain to find those shares which are less overvalued than the others, then you shouldn't be buying anything at all.

In other words, the financial markets swing from feast to famine. When it is famine--like now--don't pursue a futile search for the choicest scraps, but stay as far away as possible. When it is feast, as it will likely be later in 2007, you will have your pick of whatever sectors you prefer, at their lowest levels in years. Only buy stocks when you are overwhelmed by the astonishingly cheap and varied selection that is available across the board.

In order to buy low and sell high, first you have to buy low.

THE U.S. DOLLAR IS SET TO SURGE HIGHER (March 19, 2007): There's a headline that you probably won't see anywhere else on the internet, or even off the internet. Practically every analyst in the world is convinced that the greenback is set for anything between a slow decline and a complete collapse. However, I sharply dissent with this unanimous consensus--in large part because it is a virtually unanimous consensus. In every other worldwide economic slowdown since the U.S. dollar was delinked from gold in 1971, the U.S. dollar has risen sharply in advance of a global recession as it is perceived to be a safe harbor from the storms of declining asset values around the world. The U.S. dollar index is just above a key support level which has held strongly since the early 1970s. As emerging-market bourses are beginning what is likely to be a historic collapse in percentage terms, money which had flowed into the riskiest sectors of the global economy will be gradually migrating toward the most established safe havens. In addition, as worldwide economic growth contracts, there will be significantly less demand for commodities, and commodities have a profound inverse correlation with the performance of the U.S. dollar.