OK, so now it looks like we passed this market test too.

On the day we said the window for optimum buying was going to close the market first dropped over two percent. And then investors seemed baffled later as bad news just kept coming in but the market rallied and closed up over 2%. In addition to the bad unemployment news, the media searched under every rock to heap on additional bad news that mentioned the “D” word. "Desperate times call for desperate policy actions," said Nouriel Roubini, economics professor at NYU Stern School. "We are facing the risk of global deflation," he said. "The risk is if [policymakers] do too little you end up in a serious depression (the “D” word)."

If the window of opportunity to buy is closed is it too late now? No it is not too late for three reasons. This method makes the standard assumption that it contains knowledge of cause and effect when in reality it contains knowledge of experience not proven cause and effect. It could very well be that the cause is not what we are measuring but that our method responds to the same causes that the market responds to. In that case while our method responds similarly to the market it may be responding different enough to causes such that it would not be precise.

The second reason that it is not too late is because our method is trained with historical data and statistically optimized so that on average it provides the best result. But all stocks do not behave to the underlying forces and mechanisms driving the market. Individual stocks form something similar to a normal distribution about the mean which is what we use to optimize. The medians for each sector of the market are skewed around the mean with some sectors bottoming sooner and some sectors bottoming later. Therefore the method is not as accurate for individual sectors much less individual stocks.

Third, our method was tuned with three years of recent history and would break down completely if an unforeseen crisis occurred such as Russia invading Poland, an assignation, an act of terrorism in America, or a major scandal. Therefore this method cannot accurately predict crises events.

Together the window on precision would say we could have individual market and individual stock dips over the next week because the method lacks precision and accuracy for individual stocks. Also a crisis could at any time reverse the market and no method developed by man can predict such an unlikely event.

On the cautious side which stocks look most attractive?

1) At market lows we look for individual stocks that are most oversold but with "current ratios" over 1.0. That means they have enough short term money to survive at least 90 days if credit freezes solid. Anything could happen in 90-120 days to reverse the trend. In 2002 the market bottomed in October. It had a profitable selling opportunity that winter but dipped again in March 2003. The low was October 2002 but Bob Brinker said buy in March 2003 on that dip. He said sell in early 2000 but then recommended buying QQQ in late 2000. Bob Brinker had been one of the best market timers until then. Even though he claims not to believe the buy-until-you-die philosophy he fell into that rut in 2000 and still is in it.

2) Next we look for high stable dividends (greater than 5%). We want the high dividends because that means we could hang on for five years and still likely do a lot better than treasuries. Stable dividends imply a cash generating company that is not highly leveraged. We prefer the long term debt is not greater than the equity the stock holders have invested. But in reality a trained investor would tailor the long term debt ratio to the industry.

3) Growth stocks/funds of nations with a lot of potential look attractive. Old socialist countries that are stuck in the socialist mud look unattractive. Socialist countries that are becoming more open to the free market can be very attractive. Another reason why Asian and emerging market funds are attractive now is that in addition to being beaten down, the dollar is at this moment quite strong and we can buy more now at the dollar peak. Then as the economies turn around China (and a few others) should emerge faster because in addition to the world market they have great opportunities for creating greater internal competitive advantages as they develop a better home market and infrastructure. They are now where America was in the late 1800’s. Then as they rise we get the additional better return from the declining dollar which further raises the fund’s market value in the weak dollar denomination.

Ben, Paul, and Roubini's worries should soon evaporate because banks and industry are now ready to invest those $billions they have been given... now that they sense a bottom is forming. What would be the sense of mergers and acquisitions if prices were not about to go up? Here are the different programs that are now set to pump in money and drive up the value of stocks.

TARP: Troubled Asset Relief Program. This is the Treasury's big $700 billion ($850B including pork) program that has been used to prop up financial institutions.

CPFF: Commercial Paper Funding Facility. Buys commercial paper directly from corporations.

AMLF: Asset-Backed Money Fund Lending Facility. Fed program designed to buy short-term paper (including commercial paper) to prevent money market funds from "breaking the buck."

TAF: Term Auction Facility (or TAFfy). Program by which the Fed auctions funds to financial institutions — allowing them to use their toxic assets for collateral.

TALF: Term Asset-Backed Lending Facility (or "son of Taffy"). Recently announced Fed program designed to help the market for student, auto and other consumer loans.

TSLF: Term Securities Lending Facility. Fed program that lets banks swap bad mortgage and other debt from their books in exchange for Treasuries.

SLF: Special Lending Facilities. Originally designed to loan money to fund JPMorgan's purchase of Bear Stearns in March. Also used to back AIG's balance sheet to avoid total collapse.

PDCF: Primary Dealer Credit Facility. This is the Fed program that allowed broker/dealers and other non-banks to tap the Fed's discount window.

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