No More Water, the Fire Next Time

About a week later I wrote this lament.


August 8, 2011

This is a selling panic of incredible, mind-numbing ferocity. No one can predict outcomes, but my guess is we must be only a day or two away from a powerful rally that could retrace half of the decline of the last two weeks. History suggests that a scary retest of the lows will follow. All my contrarian instincts are aroused by the intense fear and enormous oversold condition of the markets. You want to buy fear and big dips. There is plenty of both around currently.

However, having had my fingers badly burned covering a major short in the DAX index a few days and 7% ago, I’m not ready to commit capital until there is some stability or good news. I’m totally convinced this has to be a very bad, wrong time to buy gold and sell stocks, but as a fiduciary I’ve got to protect capital. I do not want to get down more than 5% for the year. I don’t think it’s in any way similar, but the last two weeks are reminiscent of the fall of 2008 and Lehman. I want to see some decent high-frequency economic numbers for the U.S. to diminish odds of a double dip. I also want to see signs of a solution to the sovereign debt crisis in Europe. Neither is happening yet. But when I see those, I will load up! Stocks are incredibly cheap.

However, I do think the extent and magnitude of this decline is going to get the ...

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