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

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

Buy and Hold investors got crushed this week as the major indexes had their worst week in 7 years.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -8.38% thereby confirming the current bear market trend.



The international index now remains -16.32% 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.

Ever since the original $700 billion bailout proposal was suggested, I’ve been wondering how this figure was arrived at. After all, why not $600 billion or even $900 billion?

You’d think that maybe for some time a group of sharp economists and bankers in the know have, behind closed doors, pored over stacks of numbers and reams of papers trying to figure out what is really needed and which number would be accurate. Even though I am against any type of bailout, this process would have sounded reasonable to me.

Well, I was dead wrong in my way of thinking. Reader Bill alerted me to an article in the LA Times titled “You won’t believe where that $700-billion bailout figure came from.”

Here’s what it said (emphasis added):

Here’s something that John McCain and Barack Obama and Sarah Palin and even longtime Washingtonian Joe Biden probably don’t know. Not to mention Bob Barr, Ralph Nader and Ron Paul, who usually knows everything.

And it worked.

There you go. It was nothing but a shock-and-awe attempt to generate quick action. How low can you stoop and how disgusting can you get using nothing but fear to cram down a questionable bailout package, which in my view will do nothing for the economy and merely prolong problems that should have been faced right now.

If you’ve heard a different version of where the $700 billion figure came from, feel free to share it with me.

After Monday’s drubbing, the markets roared back on Tuesday with the major indexes more than cutting their losses in half. The only fly in the ointment was that the rebound occurred on weak volume suggesting that not everyone was convinced that this would be more than a dead cat bounce.

Of course, the big factors behind the comeback were hopes that Congress will approve a rescue package of some sort to bail out the ailing banking system. Only time will tell how this is going play out.

On a different subject, I received an email from reader Jean, who had this question:

Fidelity Advisor VII Technology Fund – T (FATEX) and Franklin Small Mid Cap Growth Fd Class A (FRSGX) are two funds I’ve held for almost 10 years. I keep waiting for them to reach the cost for which I purchased them.

What do you think I can expect from these two funds?

Hmm; she’s held these funds for almost 10 years waiting for a comeback to reach a break even point. Let’s take a look at a long-term chart of FATEX:

The bailout package was rejected yesterday and, with Dow being down some 300 points as the announcement was made, it dropped another 300 points within seconds thereafter.

Rebound attempts failed and all major indexes suffered steep losses not seen since the last bear market of 2001. The S&P; lost some $700 billion in market value and, I hate to say it, the portfolios of the Buy & Hope community got hammered big time.

The S&P; 500 is now down almost 14%, just for this month, and anyone holding on to long positions should have learned this lesson: When in bear market territory, the wisest move is to stay on the sidelines in cash until the trend reverses and turns bullish again.

I’ve been harping on this for the past 20 years and many readers have followed this advice and have written me that they now have a hard time hiding that smug look on their faces. No, I am not gloating here but merely pointing out that many investors continue to be mislead by Wall Street’s self serving investment approach that promotes the senseless “you always have to be in the market” attitude.

Bear markets have a way of bringing back some reality that seems to get swept under the table during bullish party times. I am repeating myself: There are times to be in the market and there are times to be out of it. The latter has applied for the past few months, since our last domestic sell signal was issued on 6/23/08.

Our Trend Tracking Indexes (TTIs) have followed the markets lower and are now positioned relative to their trend lines as follows:

Domestic TTI: -6.66%
International TTI: -16.37%

Sure, bear markets, as we’ve seen over the past few weeks, have tremendous power to bounce higher, but so far, the attempts have all been head fakes.

I have no idea if we will see a rebound rally in the near future, but nothing would surprise me. Right now, I am watching this carnage from the sidelines with my assets, and those of my clients, safely tucked away in a US Treasury only fund waiting for better opportunities.

With Washington’s circus performance in full swing, reader Tony had this to say:

The Fed is printing all this money to create the cash needed to fund whatever form this bailout takes, right?

Would you invest in gold given the inevitable inflation that printing all this new money is creating?

Sure, the devil is in the details. We won’t know yet what checks and balances will be applied to be sure the debt recreated will eventually be reduced. My concern there is too that if any profit actually comes to back that it will be spent in the usual fashion and not applied to strict debt reduction. This is how government works, but I can’t be 100% sure of that this time given the outrage of the citizens about the bailout in the first place.

Under normal circumstances, I would agree with you that such an sizable extension and expansion of credit would have inflationary consequences. However, the enormous destruction of assets (now up to some $500 billion), which we witnessed over the past year, is definitely a deflationary force to be reckoned with. I think we have entered unchartered territory and, not being an economist, I would guess that these two forces, at least temporarily, would cancel each other out. Long-term, however, one or the other may prevail.

While in times of uncertainty gold has been a great hedge, it has recently displayed tremendous volatility. If you prefer holding physical gold (coins, etc.) that’s one thing, but investing in an ETF like IAU, is another.

Let’s take a look at a 1-year chart:

As you can see, IAU is currently bouncing around its long-term trend line and could break either way. From July to September, a huge correction occurred and a subsequent rebound retraced most of those losses.

If you are an aggressive investor, you can take a position here, but you need to use a trailing sell stop. Since gold appears to be news driven right now, a $100/oz drop or gain can happen at anytime. Personally, I have no positions and prefer to wait for better confirmation of an upside breakout.

OK, I have to admit it, the following is not my idea, but it was sent to me by reader John, and I believe it’s currently circulating on the internet.

It is is one man’s great alternative to a different bailout approach. It’s simple, funny, on the spot, certainly beats the alternative and is a worthwhile read:

I’m against the $85,000,000,000.00 bailout of AIG.

Ahhh…I feel so much better getting that off my chest.

There you have it. Does this idea invoke pleasant feelings or do you feel better knowing that AIG is being bailed out?

Just for fun, I have asked some clients and friends as to what they would do if they received a tax-free windfall of some $300k. If I take their ideas, and assume that others have similar needs and wants, and multiply those by 200 million recipients, I’ve come to the conclusion that the current recession would be over in no time and an economic boom of enormous proportions would result.

Yes, it’s simple and an economist could shoot holes in that idea. But what the heck, I have to admit that thinking about the implementation of such a positive action plan makes me wonder if it could actually work.

(Correction: My wife, who is an accountant, informed me that in the above example, taxpayers would be taxed closer to a rate of 45%, rather than the stated 30%).