Last week I had an interesting discussion/debate with a financial advisor whom I hold in the highest regard.  A hard working, ahead of the curve financial advisor who takes the time to really know what’’s going on in the markets.  In the final analysis, we agree on market direction, but we disagreed on the reasons markets tend to move.

For the record, after discussing my recent equity acquisition, symbol MRW, I sold the position at a 40% gain.  Ironically, I sold the position based partly on my converstion with the financial advisor.  Since I sold, MWR has dropped 10%.  Since capital preservation is my primary goal, it appears that I was on the right side of this trade.  I am content to sit on the sidelines and let the market do it’’s thing.

The notion of putting your ideas on a website is a double edge sword.  When you are wrong, anyone of interest will see it and instantly evaluate your credibility.  When you are right, you can point to the historical record of your blogs, but many times your accurate market calls get written off as luck.

One thing I know for certain is that I cannot recall a time in my 44 years that we”ve endured such a sharp market downturn in such a short period of time.  This tells me that history is of little use predicting market moves, as I believe we are in unchartered territory (pardon the pun).  Accordingly, taking a full position in the market today, October 29, 2008, at 7:21am, in my opinion, is a gamble I am not ready to take.  Preserving capital is still my primary goal.

Results is what we all look for.  I believe the trading technique known as “short selling”, whereby a stock trader sells a stock he/she does not own, for the purpose of driving down the value of the stock sold, is an artificial manipulation of the laws governing supply and demand.  There is no discussion I can have with a financial advisor that will convince me otherwise.  I strongly believe that the loss of your equity, or money, a reduction of the values of your life savings, can be attributed to a transfer of wealth-from your 401K plans to the wealthy wall street elite. Fundamental understanding of short selling gives me a valuable asset-caution, when deciding which way to invest.  This fundamental understanding and caution has saved my savings from the ravages of wall street that so many have succumbed to.

Let’’s say I”m wrong about short selling and the “wall street elite”.  In the final analysis, who cares?  The lesson I take from the market is it doesn”t matter, in any material way, if disagreement comes to my conclusions, as long as you”ve saved your stock market funds from the historic crash we”ve endured.

The bottom line is that, while some may claim my approach was pure luck, that the market downturn had nothing to do with short selling, my caution expressed to the public before the rip down of our stock market holdings was correct.  I may have been “lucky” to call it, but as the old saying goes…”luck is the residue of hard work”.

Everyone has the absolute right to an opinion.  While some financial advisors may scoff at my approach to the market, the use of charts, macroeconomic theory and the like, they can not scoff at my results.  While I choose to go it alone in this market, my sincerest advice today would be to seek out a knowledgeable financial advisor who knows what they are talking about.  The risks are too great to do otherwise.

Sometimes you hate to be right.

When the Dow broke 10,000, as you can see below, I screamed from the mountain top to get out.  I called the 1,000 point rally, and it happened.  Yesterday, the Dow suffered a 733 point drop, the worst single day point drop in it’’s history.

Hopefully, you sold  into the rally if you did not get out at the 10,000 point mark.  What’’s next?  Sitting on 2% money markets?  Look closer…

Now that the Treasury has taken a stake in Morgan Stanley, I like the idea that with the Fed’’s backing, I can reach for the implicit Fed guarantee (almost like T-Bills), but receive a fantastic, safe return on my money.

This past monday, when the market rallied 900 plus points, I searched out for morgan stanley senior unsecured debentures.  Trading at $ 10.60 per share, the morgan stanley senior unsecured debentures (debt) was yielding an astounding 14.4% (Ticker symbol MWR).  Rather than participating in the market rally, I jumped into the morgan stanley debt, with it’’s implicit Fed guarantee.  Yielding 14.4%, when safe money can only get 2%, I figure is a great deal.

Monday, after trading, when everyone who was long made money, the debt I bought at $ 10.60 traded down to $ 10.25.  My investment was worth a small amount less than what I had paid, but I was not dismayed.  When I arrived home Monday night, I told my wife I could care a less what the market thought, I was perfectly happy to sit back and get my 14.4% for the next 25 years.

Sure enough, tuesday brought a market that must have seen the same thing, which caused the share price of MWR to rise 39% to 14.  I was up 39% on my money while the market began to tank.  Wednesday, as previously mentioned, we suffered the worst single day decline in the stock market’’s history.  While the market declined, MWR was up, trading to $ 14.28 in the after market.  The yield is still 11% while trading at 14.28, so it’’s still, in my opinion, a nice long term option of implied safety in the turbulent crosswinds of a generational shifting stock market.

Opportunity abounds when markets lose their heads.

It’’s time to get out of the market.

We have always had faith that the stock market comes back after a downturn.  The basis of this notion is rooted in chart analysis.  If you view the chart above, you will see the upward trendline begining in 1995, staying on a 45 degree  plane for 13 years.  This means that there is a relative floor in the market, or safety net built in to gauge potential losses on a market downturn.

Chart analysis dictates that when a trendline is broken, there is no discernable floor in the market.  In other words,  the stock market will most assuredly go down, and could drop as much as 80% from peak to trough.  Preservation of your retirement capital must be your primary objective, and the odds of the stock market dropping precipitously now that the upward trendline is broken are great.  Please consider liquidating your holdings in the market now, or sell into a rally (which could be as high as 1000 points), because the overall downtrend is now firmly in place.

In my book, “If Everyone were rich, who would make me dinner?”, I predict that our baby boomer 401(K) and pension funds will not be in the stock market by the time we start to draw on our funds due to the wall street wealthy short selling the market down to extremely low levels.  In other words, the wall street wealthy elite will essentially take our 401(K) and pension funds through the trading practice known as short selling.

Well, guess what?  The first baby boomer social security checks went out in November 2007.  It didn”t take long for wall street to jump on our equities and begin stealing the equity from our 401(K) accounts.  If you notice on the chart above, coincidently, the dow jones industrial average hit it’’s all-time high in October 2007 and is down 40% from this level.  Expect this downturn to get really bad, really fast.

The wall street wealthy elite will not allow the baby boomers to retire.  Please preserve your retirment now.

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