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8:30 AM EST, Wednesday, August 8, 2007: This may be the hardest and the easiest stockmarket to predict. It's impossible to predict day to day. The gyrations are enormous. Up 200 one day, down 200 the next, etc. It's particularly easy to panic -- the disease which afflicts me. Panic forces you to act, especially to sell. Panic can lead to a too-early sale. Panic can also lead to a sale that you'll be eternally grateful for. The key is to make panic based on logic and sound rules. The soundest rule is Harry's 15% Sell Rule. If it's down by 15% from its peak, sell it. In a volatile market (e.g. today's), selling it today can come home to bit you in the tushy tomorrow, as it zooms back. Hence "panic" can lead to self-misery and ridicule by all your "sophisticated" friends who say you sold "too early" and "you're a lousy investor; you shouldn't own equities, you should be in for the long-term, etc. etc."

When to sell is the hardest part of the investment equation. The "traditional" reasons are:

1. It's risen to your price target. Good luck figuring one.
2. The company has disappointed in its earnings, or other fundamentals.
3. Newton's 15% Sell Rule kicks in. I have back-tested this rule with many studies. Its track record shows you save far more than you would have made staying in and watching it go down further or rebound into the ionosphere.

After you sell, the best thing you can do is NOT to watch the stock you sold. Newton's new Law (made up today) of Stockmarket Masochism says that your stock will bounce back. And you feel like a total moron. If you're like me, you'll probably mope around all day, making the lives of everyone you meet totally miserable. My "solution" is to take my misery out on some victim on the other side of the tennis net. That nearly worked last night, except I lost. But I played well -- the best I've ever played. So that mitigated my misery.

One of my proudest moments was panicking into selling Cisco at $36+ in the year 2000. Obviously (see chart) I should have sold it at $68 (85% of $80, its peak), but I wasn't watching and my Cisco stock was pledged to the bank as security deposit on a commercial lease.

My panic at that time gave me the incentive to work through the layers of idiocy at the bank who were concerned that selling Cisco would cause their security deposit to evaporate. But my decision was right. Cisco has still not recovered to its $36 price.

By the way, if tennis doesn't work to absolve your feelings of idiocy, try buying something on eBay. That will keep you amused (i.e. busy) for hours.

What's happening in the markets and in the economy? Despite Monday's big bounce I remain no more optimistic long-term than I was on Monday when I wrote "The party is well and truly over." A reader recommended I read the blog "Cassandra does Tokyo -- Mostly original content that examines financial surreality in equity markets in general, and the Japanese Stock Markets in particular."

Cassandra tarts with dislocation, talks about a dysfunction investment strategy, runs this icon...

and then has these interesting words:

But there is a another possibility, and I think it perhaps more likely. SOME VERY LARGE FUNDS ARE IN THE PROCESS OF DE-LEVERAGING/LIQUIDATING (EITHER FORCIBLY OR VOLUNTARILY), THE NAMES OF WHICH WILL BECOME APPARENT TO ALL SHORTLY. This means that they are having to buy-in their shorts presumably a combination of expected under-performers, most likely from the realm of the shitty, the overvalued, the large cap & cap-weighted ETFs or all the preceding, and sell/puke those generally smaller-cap alpha-generating things that are "cheaper" or exhibit characteristics of value that are likely to yield positive relative return in the future, AND THEY ARE SELLING THEM WITHOUT RESPECT TO PRICE OR VALUE BECAUSE THEY HAVE TO, either because investors have asked for their money back, or to meet margin calls elsewhere, or because their lenders have pulled their lines, and so on.

Make no mistake: This is a liquidation event, and it is of a magnitude much larger than seen in 04, 05, 06, or early 2007, and rapidly approaching that of 2002. While GS/Mark Carhart's $10 billion Alpha fund was down 8% in late July, IT IS LIKELY THAT THE LOSSES FOR HIS AND SIMILAR FUNDS IN AUG TO DATE WILL STAGGERING BY COMPARISON.

For those under-leveraged and under-exposed, this will be opportunity. For those investing in the typical beta fund with concentrated smaller-cap longs versus ETFs, with any kind of value bias, there will be no exit. The response by the end investors - particularly HNW retail who for the most part are absolutely clueless about risk, and generally feedback trading, the will be redemption PANDAEMONIUM as knaves digest the realization that oh-so-much is, in fact correlated to credit, and that their loss-tolerance is, contrary to bluster and swagger, very small indeed.

Anyone care to take a guess or two as to "WHO" precisely is getting waterboarded by the market??!?

What Australia thinks will happen to the U.S. As the U.S. Reserve Bank decided to hold its rate steady, Australia raised theirs. Here's the statement from Glenn Stevens, governor monetary policy:

At its meeting yesterday, the Board decided to increase the cash rate by 25 basis points to 6.5 per cent.

Domestic economic data in recent months have signalled a pick-up in the pace of growth in demand and activity. Capacity utilisation is high after a lengthy period of expansion, and unemployment over recent months has continued to decline. Business and household confidence are strong. The demand for finance has strengthened, even apart from the temporary surge in June, particularly in the business sector. These conditions have been accompanied recently by higher-than-expected underlying inflation.

In assessing the outlook, the Board gave careful consideration to recent developments in the global economy and financial markets. Credit markets in the US have experienced some turbulence in recent weeks, which may pose downside risks to the US economy. While this will need to be kept under review, developments to date do not appear to have changed significantly the broader global outlook. Even with the US slowing down, forecasts of global growth have recently been revised upward. High world commodity prices remain an important source of stimulus to Australia’s national income and spending.

For some months, the Board has recognised that stronger economic conditions were likely to put upward pressure on inflation, notwithstanding some dampening influence from the higher exchange rate. As a result, the Board has been of the view that further monetary policy tightening could be required. The main factors that had allowed time for further consideration were that, prior to this month, the two most recent inflation results had been unexpectedly subdued, and wages growth had remained moderate. However, the high CPI outcome for the June quarter indicated a less favourable near-term outlook, with the implication that any further increases in inflation would take place from a higher starting point than previously envisaged.

Based on these considerations, the Board judged that a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term.

Lenovo tells fibs about its delivery times. It says on its web site it "ships within 1-2 weeks." Michael, my son, ordered a ThinkPad notebook on August 1. He needs to take it to business school. Lenovo is now telling us it won't be shipped from the factory until August 27. That's not 1-2 weeks. That's too late. My son is furious. Lenovo's customer "service" stinks. Talking to overly polite but powerless people in India doesn't cut it. Even Lenovo's main North Carolina headquarters office switchboard is answered in India. The mailing address of Lenovo's president is secret. The operator will not divulge it. Dealing with Lenovo is an exercise in pure insanity. They obviously just don't care. One good reason to be wary of their stock.

The Bourne Ultimatum is boring: The movie is an endless chase broken with occasional violent fights. There is no plot -- or at least one that makes any sense. The technology is not believable; the bad guys even less so. Matt Damon is the movie's only redeeming asset -- but his handsomeness is not sufficient to justify the steep admission cost (even for seniors)..

The Jewish Mistress
A Jewish husband and wife were having dinner at a very fine restaurant when this absolutely stunning young woman comes over to their table, gives the husband a big open mouthed kiss, then says she'll see him later and walks away.

The wife glares at her husband and says, "Who was that?"

"Oh," replies the husband, "she's my mistress."

"Well, that's the last straw," says the wife. "I've had enough, I want a divorce!"

"I can understand that," replies her husband, "but remember, if we get a divorce it will mean no more shopping trips to Paris, no more wintering in Barbados, no more summers in Tuscany, no more Jaguar in the garage and no more yacht club. But the decision is yours."

Just then, a mutual friend enters the restaurant with a gorgeous babe on his arm. "Who's that woman with Moishe?" asks the wife.

"That's his mistress," says her husband.

"Ours is prettier," she replies.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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