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9:00 AM EST, Thursday, December 11, 2008: I don't like present P/Es. They're too high. And many don't take into account lower upcoming earnings. At this point in the pullback -- the S&P is down 43% from its peak in October last year -- P/Es should universally be in single digits. That would make them seriously compelling.

Lots of investors -- me included -- have ants in the pants. They can't stand the lousy yields they earn from being in cash. We yearn "to put our money to work." We are intrigued by the "big money" some traders are allegedly making and portrayed in shows like CNBC's "Fast Money."

"Buy and Hold" is dead and buried. The only way to make money on the market has been to day-trade stocks and options. I personally don't have the stomach for it. I get burned too often by the extreme volatility. Up huge one day. Down huge the next.

If you play the day trading game, you have to be glued to the screen, ready to pull the trigger the moment your trade moves against you. Not 15% stop loss. I'm talking 2% to 3%. Since you're playing a game you can't control, you'd better have nerves of steel. Even the hedge funds who played this game -- and fed their conclusions to CNBC -- didn't get it right. It's too difficult. These words are my way of saying, "Sorry for the itchiness and lousy returns. Stay largely in cash a little while longer."

I remain fearful. A reader sent me a copy of Ian McAvity's December 10's Deliberations on world markets. He writes,

"Since 1900 there have been nine major bear markets with losses in excess of 35% tabulated here and shown in terms of depth of loss and duration.

With the current cycle down 51.9% in 58 weeks at the recent low, it ranks as the third worst, but third shortest. Great damage has been done to virtually every trend, which will require time and base building to repair. Yes, we will see wildly volatile rallies, and more steep declines. Harking back a few issues, the DJIA has now recorded 13 days of +/- 5% change, with 9 down and 4 up since September 29th. That's second only to the 43 such days of the 1929/32 bear that everyone hopes we can avoid replicating.

This crash is very similar to the 1937/38 crash. It retraced half its loss in 32 weeks, a 62% rise from its April 1938 low to November 1938 before it rolled over and zigzagged to lower lows by 1942. I'm troubled by how many (investors) are so anxious to buy that 1938 rally because we're so intensely oversold. I wish I could be so sure of it, but I'm still way too nervous."

I continue to be intrigued by gold. The theory is simple. Pump endless money into the economy. You turn today's deflation into tomorrow's soaring inflation. That will hurt the dollar. The only safe haven is gold. That's the theory. Gold hasn't boomed. But yesterday it went nuts, sort of. The usual suspects jumped:

GLD rose 2.8%.

The double gold ProShares DGP rose 16.6%.

GDX, the gold miners, rose 3.8%.

Newmont Mining, the old standby, rose 12.9%.

The theory says everyone should have some gold. If I extended the range on the GLD you'd see it's been a good long-term investment -- until recently.

I'm guessing you might get a short-term bounce out of this, given all the publicity that gold is presently attracting.

Everyone will negotiate their agreed price. A friend rents a house in California. Out of the blue, his landlord calls. He'll drop the rent by 30% if my friend agrees to extend his lease for another two years. I'm trying to buy some small items on eBay. I emailed, "Will you take $150, instead of $190?" They replied Yes. Because he pays in cash, my father-in-law gets a 40% discount from the local hospital.

I used to think you couldn't bargain with brain surgeons. Years of experience shows "brain surgeons" will do the same job for you irrespective. They're either professionals or not. A professional has pride in his work. A non-professional doesn't. Your job is to pick the professional and then negotiate.

Eight really really scary predictions. Fortune magazine spoke to "eight of the market's sharpest thinkers and what they had to say about the future is frightening." Professor Nouriel Roubini is the gloomiest. He says:

For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cashlike instruments such as short-term or longer-term government bonds. It's better to stay in things with low returns rather than to lose 50% of your wealth. You should preserve capital. It'll be hard and challenging enough. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.

You can read the other projections by clicking on Fortune's 8 gurus.

Strange happenings in bonds. From today's

Stocks Say Recession, But Bonds Say Depression.

Extraordinary things are happening in bond land lately. Tuesday's head-spinning news that Treasury bills had been auctioned off with negative interest rates is only the latest in a series of astonishing developments, surpassing even the more widely followed stock market swings.

While the Treasury auction grabbed headlines, corporate bonds are doing equally amazing things: The average yield on lower quality investment grade corporate bonds — triple-B rated — is hovering around 10%, an unusually rich 7.5 percentage point spread over Treasury bonds of similar maturity. (That spread has tripled over the past year.) Or consider junk bonds, as measured by Merrill Lynch's High-Yield bond index, which yield a jaw-dropping 22%. Of course, junk bonds come from the riskiest borrowers, and a deep recession could drive up the default rate among those companies. But current lofty yields imply investor expectations that one fifth of these bonds will default, according to Moody's, even though the recent default rate in this sector has been around 3%. Notes Kirk Hartman, chief investment officer for Wells Capital Management, a division of Wells Fargo bank: "Spreads [over Treasuries] in the bond market are pricing in a depression scenario while the equity markets, despite a substantial decline, are pricing in a recession." (Read "The Recession Is Made Official [EM] and Stocks Take a Dive")

Many factors weigh on the bond market, such as the falling price of oil — it closed at $43.52 a barrel in Wednesday's trading — the progress of the auto industry bailout, not to mention every gasp from the housing market. And then there's the elephant in the room — the downward spiral of economic activity, including last week's chilling November employment report that showed 533,000 more people out of work — "one of the worst ever," according to Morgan Stanley economist Ted Wieseman. As the various industry bail outs — banks, auto companies, credit unions, and next, states — seek to reassure investors, collectively they confirm just how bad things are.

But at its current extreme, bond investor fear is also myopic. In striving to avoid the falling stock market and the downdraft of the economy, investors are all but ignoring the longer-term inflationary implications of a monetary easing and explosive growth in U.S. Government spending, and what it could ultimately mean to bond yields. At Thursday's close, for example, the 30-year T-bond was yielding 3.07%, implying investor expectations for stable prices for decades to come. Inflation-protected Treasuries, known as TIPS, are yielding so little that money managers say they imply investor expectations for a deflationary environment for the next few years. All of which points to the fact that nobody really cares about inflation dangers at this point; it's all about safety.

So how should investors approach the bifurcated bond market? Should they run for safety of Treasuries or consider the neck-wrenching yields now available in other sectors? Notes money manager Hartman: "From a relative value standpoint, bonds offer an unusual investment opportunity" that he expects to pay off once the housing market bottoms and the financial outlook improves. "Investment grade corporate bonds are very cheap and high-yield bonds similarly offer great value at these levels," he says. Treasury bonds on the other hand, are widely viewed as overvalued based on what can only be characterized as the Armageddon-anxiety rally of the past few months. They could wallop investors with losses should the economic recovery take hold next year.

Regular gas drops. From reader, Ryck Wilson "Regular gas is $1.36 per gallon in Bartlesville Okla, about 50 miles north of Tulsa. Nice continuing stimulus.

Hedge funds have their disadvantages. From Bloomberg.

D.E. Shaw, Farallon Restrict Withdrawals as Fund Freeze Deepens

Dec. 4 (Bloomberg) -- D.E. Shaw & Co. LP, the investment firm run by David Shaw, and Farallon Capital Management LLC limited withdrawals by clients, joining more than 80 hedge-fund managers to impose restrictions in the past two months.

D.E. Shaw, which oversees $36 billion, capped redemptions from its Composite and Oculus funds, said two people familiar with the New York-based company. Farallon, a $30 billion firm based in San Francisco, did the same with its biggest fund after investors asked to get back more than 25 percent of their money.

The firms are two of the biggest to block withdrawals, known as putting up gates, so they aren’t forced to liquidate investments at distressed prices to raise cash. New York-based Fortress Investment Group LLC said yesterday it froze an $8 billion fund after getting redemption requests for 40 percent of its assets. Tudor Investment Corp., the Greenwich, Connecticut, firm run by Paul Tudor Jones, locked the $10 billion BVI Global fund last week ahead of plans to split the fund into two.

“There’s no longer the stigma associated with putting up gates or suspending redemptions as it was before this crisis,” said Jaeson Dubrovay, head of the $19 billion hedge-fund group at consulting firm NEPC LLC in Cambridge, Massachusetts. “It’s actually being encouraged by some large institutions as a way to protect longer-term investors from those who panic and redeem.” ...

The gate on D.E. Shaw’s Oculus fund was triggered after the company received redemption requests for more than 8 percent of assets, said the people, who asked not to be identified because the information is private. The fund, which tries to profit from global economic trends, is up about 10 percent this year, compared with the average 16.4 percent decline for the industry through October, Hedge Fund Research reported.

The governor of Illinois. The governor, a Democrat, tried to sell Barack Obama's Senate seat. He may or not have been offered as much as $500,000 in cash by one candidate. And he may or may not have offered the seat to the arresting policeman. I will admit to not reading the long 90+ page indictment. I picked up my "news" on the governor secondhand. Every blogger and comedian had a field day with the governor. Apparently, the Governor still has his fans. To them I apologize if I got it wrong.

Latest favorite New Yorker cartoons:

Sister Mary's gas.
Sister Mary Ann, who worked for a home health agency, was out making her rounds visiting homebound patients when she ran out of gas. As luck would have it, an Texaco Gasoline station was just a block away.

She walked to the station to borrow a gas can and buy some gas. The attendant told her that the only gas can had been loaned out, but she could wait until it was returned. Since Sister Mary Ann was on the way to see a patient, she decided not to wait and walked back to her car. She looked for something in her car that she could fill with gas and spotted the bedpan she was taking to the patient. Always resourceful, Sister Mary Ann carried the bedpan to the station, filled it with gasoline, and carried the full bedpan back to her car.

As she was pouring the gas into her tank, two Baptists watched from across the street. One of them turned to the other and said, 'If it starts, I'm turning Catholic.'

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 on this site. Thus I cannot endorse, though some look 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 Michael's business school tuition. Read more about Google AdSense, click here and here.