Previous Columns
9:00 AM EST, Thursday, May 7, 2009. It's easy to get out of stockmarkets. There are two ways. First, our 15% Stop Loss Rule. Second, when the economic clouds start darkening, as they did in the fall of 2007. It's not easy to get back in. There are no easy ways to pick when to get back in. I didn't pick early March. I was caught up in contagion fear. So I missed most of the 30% rise since. But then, so did my three remaining brilliant, hand-picked money managers. They're basically flat since March! Heck, even index ETFs did better. (And that's saying something.)

Before I go further, I want you, reader, to understand several things.

1. My self-imposed 9:00 AM deadline each morning for this column doesn't always allow for heavy, long-term thinking. I tend to get caught up in the moment of what I read between 6:00 AM and 9:00 AM.

2. I'm fickle, just like the rest of the financial press. We tend to think and write together -- the same sentiment. You, as intelligent thinker, should be aware that most financial reporters don't have significant "skin" in the game. So, to them, financial markets are, somewhat of an academic way to fill space and earn a living by filling that space. Editors prefer you to fill space with conventional wisdom -- what everyone else is writing about. I'm different twofold. I don't earn a living from this column. Trust me. This is a labor of love. But I do have skin in the game. When I lose capital, I feel it.

Yesterday I feared massive inflation. Today I'm feeling better. Here's a chart. Obama's national debt will be high. But it has been higher and the country survived without massive inflation. Eventually the national debt came down.

Last night my Australian friend Rob Douglass sent me the latest Pain Report. It starts:

Since our last Pain report Global Equity markets have performed very impressively and we have similarly seen a significant improvement in “risk appetite” across all asset classes. The process of healing continues throughout the capital markets and the “Armageddon” we faced in October
2008 appears to be fading like a very bad dream.

The Bloomberg chart below shows the dramatic improvement in the LIBOROIS spread, which we have mentioned previously is a good barometer of the degree of stress in markets.

On the economic front we have seen much "chatter" about the second derivative ( the rate of change of the rate of change) of economic growth and similarly many recorded sightings of the "green shoots" of economic recovery. From a statistical point of view the "stabilisation" argument is evident in manufacturing surveys across the world. Similarly we can see from the U.S first quarter GDP report that inventories are likely to contribute to growth in the second and third quarters since they fell at a record, and arguably unsustainable, pace in the first quarter.

Across the world companies engaged in a "frenzy" of production cuts, the likes of which we have not seen since the Great Depression, and in some cases such as Japan, South Korea, Germany and Singapore one could say even more so than the depression. So what began on Wall Street in 2007 moved like a "wrecking ball", in a rolling contagion, through the Main Street of countries all across the globe and even finally touched Sesame Street, with the news that they too had to announce cutbacks.

Throughout 2008 we continued to warn that both economic growth and corporate earnings expectations were way too high and this was painfully illuminated by the "astonishing" bottom up equity forecast, as at September 2008, of a 40 % plus forecast for S&P 500 earnings for the fourth quarter of 2008. The record now shows that the outcome was a decline of over 30%. Then as we approached the "lows" in March 2009, some 20 months after the financial crisis had erupted, a number of analysts and economists told us all that the crisis was serious and bottom up equity analysts were "decimating" their earnings forecasts.

If we can now fast forward to May 2009 my big picture observation is that I am less fearful today than I have been in a long time. We appear to have avoided financial and economic Armageddon and markets have moved from pricing a deep depression to pricing a nasty recession.

For the last five months the title of my speeches has been the Mother of all Stimulations and we have written extensively, as have many others, about the unprecedented "quantum" of both monetary and fiscal stimulation and how we await for these measures to gain some "traction". Similarly the world's financial system has in effect been underwritten by the governments of the world and in many ways this has been Lehman Brothers parting gift to the world. Having seen the whites of the eyes of the "financial apocalypse" unleashed by the failure of Lehman, Governments in turn, unleashed the mother of all rescues. I stayed up throughout the night of October 10th 2008 as every worst fear, became reality on my Bloomberg screen and CNBC.

So yes I feel a whole lot better in May 2009.

But having said all of this we have not changed the laws of economics and after an era of unprecedented credit expansion we now face a lengthy period of credit contraction (please see earlier Pain Reports for the world's scariest chart, namely debt/ GDP in America). This process of balance sheet contraction, or healing, will be driven by further massive deleveraging in the financial sector. The International Monetary Fund's latest Global Financial Stability Report provides a revised estimate of total write-down's in the global financial system to more than U.S$ 4 trillion. This clearly means that banks will have to continue to raise significant amounts of equity, and similarly engage in a painful and prolonged period of deleveraging. ...

In the last several weeks I have become much more balanced in my views and hopefully this came through in my last Pain Report as I did suggest that equity markets were grossly oversold and that the rally had further to run, and that it has. The "perma bears", of which believe it or not I am not, dismiss the rally which I think is simply silly. They could at least acknowledge that the risk of systemic failure has largely been removed. The "perma bulls", well what can one say, for them every day is a new low, as they live in a set and forget world, which can be so very damaging to your financial health. So I am sorry to disappoint you, I belong at present to neither camp and neither should you. Everyone keeps asking was 666 the low? I don't know and I don't care.

What I do know is that there is an undeniable improvement in "risk appetite" and there is a mountain of cash sitting on the sidelines and that investors have changed their approach from one of selling on strength to one of buying on weakness. Similarly having been hopelessly in denial in 2007 and 2008 many economists and equity analysts have significantly reduced their expectations of both growth and earnings. Now, if the market is priced for "Armageddon" and it doesn't happen, then one can be forgiven for feeling a sense of relief. That is exactly what has happened, but none of this really helps either you or I. So time for some head on the block views of the future.

As we head for the northern summer many investors are likely to fear being left behind by the current rally in equity markets and this could see the S&P 500 reach for the 1,000 level. As we then move towards the northern winter I feel the markets will experience what best could be described as a reality check as unemployment continues to rise and the consumer continues to reduce spending and increase their savings.

You can read the entire Pain Report here.

Is it time, Harry, to get back into the markets in a major way -- not just the handful of stocks I already recommended -- ERF, PWE, LINE and Apple. Yes, it is time to get back in. But, obviously, you need to pick carefully. I like EWA, the index for Australian stocks. Sadly, it's already bounced a lot off its bottom. But it's got a long way to go before it gets back to the point I sold it. Good move Harry.

Should you buy a Kindle 2? My son loves his. I hate it. He (and every other Kindle owner) loves that you can cram hundreds of 5lb thousand-page books into an electronic device that weighs a pound. I hate it because it's slow and cumbersome, and it's not a book. There are other better electronic ways of reading things and surfing the Internet, including the iPhone (cheaper and smaller), my BlackBerry and small powerful laptops, like my Lenovo X61. Laptops have advantages:

1. They have a color screen. The Kindle's is shades of gray. Laptops's screens are backlit, so you can read them where light is scarce. The Kindle needs outside light.

Kindle screen. Readable, but not exciting.

2. Laptops are much, much faster than the Kindle, which is SLOOOW. The Kindle doesn't do WiFi or wired broadband Internet. It does Amazon Whispernet, which is really slow Sprint EVDO wireless broadband. Good enough for desperate connecting (in cars, trains, buses) but for serious connecting (at your desk or in your home).

3. Laptops much more storage space. My X61 has a 250 gigabyte hard drive. The new Kindle 2 has 2 gigabytes -- and no way to expand it.

4. The Kindle's tiny keyboard sucks. It's useless for typing. It's meant for annotating. Frankly, I prefer BlackBerry "keyboards."


Kindle "keyboard."

5. It's easier and cheaper to get documents like PDFs and Word DOC files into a laptop than onto a Kindle. Losing all the color is a huge

Son, Michael, yesterday doesn't understand why Daddy thinks the Kindle sucks. He must be right. He now a certified genius. He graduates from business school in less than a month. Daddy won't be paying any more college fees or living expenses, God willing.

Michael loves his Kindle, which Anne gave him as a birthday present. Nice Anne. Michael wonders which screw is loose in Daddy's tiny brain that he can't appreciate the full brilliance of the Amazon Kindle, and is the only piece of technology Daddy hasn't bought. (Notice gray hairs on Michael. This 27-year old kid is driven. Seriously driven.)

Wipe your BlackBerry. It's genuine magic. I walked into a Verizon store and said, "Wipe it." They asked, "You sure you have everything backed up?" "Yes. Everything is on my laptop." They wiped it clean. Suddenly, it works well and fast. The buttons do what they're meant to. The calendar is clean. What a pleasure.

Toto toilets don't clog. My friend has nine children. He says the only toilets in his massively-stressed house which have never clogged are Toto. What better recommendation.

If you're a teacher or a student, the Wall Street Journal costs $99 a year -- not the $349 they want for a renewal from normal people, like you or I. You can find plenty of academic subscription web sites on the Internet. Use Google.

I don't have a single joke this morning. I'll do better tomorrow.

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.