The World’s Economic Forum yearly retreat in Davos, Switzerland attracted the usual cadre of high-flying financiers and CEOs from around the world. No question that the egos of many participants were bruised last year as a crippled financial system and a deep global downturn changed the tone of the seminars and meetings.

Nouriel Roubini, who forecasted much of the current economic malaise, had this to say in an interview leading up to the annual gathering:

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Further sell offs caused the major indexes to lose for the week and for the month.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -11.01% thereby confirming the current bear market trend.



The international index now remains -19.74% below its own trend line, keeping us on the sidelines.



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Thanks to reader John for submitting the below video clip titled “I want some TARP.”

Now that the only requirement to get on the federal TARP program (Troubled Assets Relief Program) seems to be an extreme high level of debt along with near insolvency, there are bound to be many others asking for free money.

Enjoy!

Random Roger had some interesting thoughts in his recent post titled “Monday Musings:”

This may come off as an unpleasant rant. Between a couple of articles I found over the weekend and watching the Consuelo Mack show on PBS I came away with a very low regard for the way some folks do things.

First up was an article from Morningstar about what they got wrong in 2008. I have been writing about how worthless the analysis is for as long as I have been writing. They are a bottom up shop and from what I can tell it is a rare day when bottoms up warns of a bear market. Low PEs and other ratios don’t matter when the market is going to rollover into a bear. When the market is going up most stocks go up so a good bottoms up might find stocks that go up more than market but being right about the market would seem to be more important. So with that backdrop Morningstar says the learned a bunch of things in 2008. I would wonder what they learned in 2001 and why that seemingly did not help in 2008.

I have mentioned before that Morningstar’s ratings are one of the most useless tools in an investor’s arsenal yet millions follow them blindly. Whatever approach they use to determine the rankings does not really matter, what matters is that it simply represents a different twist of the buy and hold mentality, which will subject its followers again and again to bear market disasters. Yes, I agree, Morningstar has not learned a thing since the last bear market in 2001, which caused their followers huge portfolios haircuts in 2008.

This article from Seeking Alpha contributor Marc Gerstein posits that collectively the crew at Morningstar is just too young. He believes that experience matters a lot when it comes to navigating the market. I find his take interesting because at 42 I am probably in between his definition of too young and experienced. One reader commented that Morningstar has a bullish bias which hurts them. I don’t know if that is true or not but there might be something to the youth angle but I do think it is bigger than that. Look at Larry Kudlow who must be close to 60 either way or Art Laffer or even Brian Westbury (I think Brian is older than me) they are all experienced and all missed this coming in hideous fashion, bizarre really.

No, age has nothing to do with it; it’s the insistence on using a bullish stance in a bearish environment come hell or high water that is the problem.

This gets me to the Connie Mack show which this week featured Brian Rogers from T Rowe Price and Chris Davis from the Davis funds. Brian’s fund the T Rowe Price Equity Income Fund lost 35.8% in 2008 which was the worst year for the fund going back to 1985 “by a lot.” He said that when there is a severe credit contraction there are very few places to hide. Even safe areas like utilities were “traumatic.” Consuelo asked if there was anything he would have done differently or could have done differently and he answered “no I don’t think there is.” He said they would continue to focus on good quality companies that have struggled, with good balance sheets and valuations. He then said there are things he would have done differently but he didn’t say what.

In past posts I have mentioned that mutual fund managers are not the asset allocators. It is reasonable for a fund manager to invest all of the money in his fund so this post is a bit of a contradiction but I was dismayed by Rogers’ comments and to a lesser extent Davis’. So an active fund manager might be all in but these funds can invest at the sector level in any manner they want so they could have underweighted or avoided financial stocks (financials clearly hurt Davis, not sure about Rogers but JPM, GE and WFC show up in his top ten).

In a bear market there a few places to hide. Since the brokerage industry as a whole has itself dedicated to always being invested in something (so product can be sold continuously) under various disguises of asset allocation, bottom up or top down investing and MPT (Modern Portfolio Theory), they have to pay to price when the bear strikes. All of these themes never look at trends and major market turning points to assess whether ones ideas are still valid.

I am so critical here because I think well if I saw something bad coming (but did not correctly guess the magnitude) how did these guys miss it so badly? They both are smarter than I am and that is not false modesty. Davis might say something about the capital gains embedded in the positions (a point made on past episodes of the show) so maybe no one should buy the fund going forward but that would also mean he made taxes the priority which will lead to tears more often then not. Taxes should never be the first priority.

2008 was not a matter of “seeing something bad coming,” because it assumes that you have the special gift of foresight. It was simply a matter of following major trends in the market place and acting at the turning points.

That’s it; no more no less—no smarts required.

What was required was the realization and experience (from previous bear markets) that senseless holding of any investment, no matter what the economic circumstances or the Morningstar rankings, will have negative consequences when the trends turn south.

A bear market takes no prisoners and even the stock prices of the most bluest of all companies will go down—no exceptions. When the trends change, you simply act and get out. When we went to all cash on October 13, 2000, we had no idea about the magnitude of the following bear market nor did we last year when we exited on June 23, 2008. Trying to assess fundamental reasons when trends head south is simply an exercise in futility.

MarketWatch reports “Much more pain to come, says fund manager.” Let’s look at some highlights:

Investors hoping to see an economic improvement in 2009 may be in for a rude awakening if one fund manager is to be believed.

“But be prepared for a decline to new lows this year or next, for that would be the most likely historical pattern, as markets love to overcorrect on the downside after major bubbles,” he warned. “Six hundred or below on the S&P; 500 would be a more typical low than the 750 we reached for one day.”

[Emphasis added]

Value in the markets? Here’s that nebulous phrase again that can cost you a lot of money. Value translates to something that is subjectively considered cheap. Cheaper than what? Last year’s price? Who cares if it’s cheap; it can get a lot cheaper.

The best definition of value I have heard is by Al Thomas who said “that a mutual fund/ETF only has value if it goes up after I buy it.”

Grantham’s forecast of the S&P; 500 dropping into the 600 range is now the 4th or so prediction I have heard for this number to be reached. That would represent a 25% drop from current prices. Whether we get there or not is not as important as is the question whether the Buy-and-Hold folks are prepared to deal with another major set back.

This market environment can humble anyone at anytime if you’re not prepared to work with an exit strategy that may produce a small loss but will prevent your portfolio from suffering a serious meltdown.

The emails from investors, who have held on to their long positions during this bear market, keep coming in. Here’s what reader Dave had to say:

I am 73 and still working. Against all advice, I remained 80% in stocks because I felt I had such a long way to go to be able to afford to retire, and was willing to risk it, since things were going so well.

I would appreciate having your view of my situation.

Dave’s story pretty much reflects the view of many who have written in on this topic. I have talked about this before, but it’s worth repeating.

First, be aware that there is no perfect solution to get you out of this mess, but strictly hoping and relying on Obama to come up with some magic trick to not only get the market back on track, but do so quickly, is something I would not want to rely on.

Maybe he will, maybe he won’t, but in the meantime you can implement one idea that might calm you down emotionally and prepare you do better deal with the continued volatility and false rallies:

Sell 50% of your invested holdings and put a 5% sell stop under the balance.

This simple idea will limit further losses, should the market head south again (and there’s a good chance of that) or, if a major trend resumes, you will participate with 50% of your positions. As I said, it’s not a perfect plan, but it’s better than no plan at all.

Look at the worst scenario. If the November lows get taken out, and the S&P; 500 heads towards 600, as some forecasters think, you’ll be glad to have sidestepped further severe losses.

If, on the other hand, a new bull market materializes, you will already be on board with half of your assets and can easily re-invest the other half, once our Trend Tracking Index (TTI) signals a new Buy.

If you think about this, you will realize that most of your discomfort comes from the fact that you are like a rudderless ship drifting in the ocean. Adopting a plan, such as I suggest, may provide you with the life raft you’ve been looking for.