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9:00 AM EST, Tuesday, October 13, 2008:

Oh, the temptation. To jump in, grab a few favorites, ride them for the day and then jump out with a handsome profit. I watched the big rally start yesterday and I thought "this could end as fast as it started." Quickly I put it in the "too hard" basket and played tennis.

This market remains in the "too hard" basket. The continuing weak corporate earnings speak against yesterday's gigantic "oversold rally." Also called a "dead cat bounce." But then the weak earnings fundamentals didn't justify the huge losses of the last few weeks. Markets are bundles of wild emotions that change by the second. Today the "feedback" loop is faster and stronger than ever before. Think ten years ago. Nobody carried the stockmarket on their BlackBerry or their iPhone. No one bought and sold stocks sitting in a meeting or in a taxi. That speed leads to volatility. And volatility hurts our ability to make sane money. Ten years ago, people actually believed in "buy and hold."

Go back to what Keynes said, "The stockmarket can stay irrational longer than you stay solvent." In other words, "When in doubt stay out."

The good news is concerted government action worldwide has definitely averted a depression. We grabbed it fast -- 13 months. It took over three years before the U.S. government did anything in the 1930s after the 1929 bust and then it didn't do anything like what every government is doing now.

We're shoveling money into banks. The banking system won't fail. But for the economy of real companies -- butchers, bakers and candlestick makers -- to survive requires bank lending to resume. For that to happen requires confidence. To rebuild confidence takes time. It is not a matter of writing a check (or in the present case, many checks).

Others also are putting the stockmarket in the "too hard" basket. Today's Wall Street Journal has a piece. Some excerpts:

'Smart Money' Stays on the Sides

Some hedge-fund titans have yanked most of their money out of the stock market, a bearish sign amid Monday's euphoria and an indication of how the hedge-fund business is changing amid chaos.

In recent days, Steven Cohen, the hedge-fund manager who runs the $14 billion SAC Capital Advisors, moved about half his funds, or about $7 billion, into money-market and other short-term securities, eliminating much of his fund's exposure to the stock market, says a person close to the fund. Mr. Cohen plans on sitting on the sidelines for the rest of the year -- trading a small portfolio himself but keeping shuttered most of the stock portfolios of his other managers.

Israel Englander, who runs the $14 billion Millennium Partners fund, has shifted about $6 billion from the stock market into cash, a person close to the fund says.

Meanwhile, John Paulson, manager of $35 billion Paulson & Co. -- who made a spectacularly successful bet against the housing market last year -- has much of his fund in cash equivalents.

The retrenchment by Wall Street's "smart money" crowd is part of a larger effort by hedge funds that have put a total of as much as $400 billion into cash equivalents recently, according to David Kostin, an analyst at Goldman Sachs Group Inc.

Of course, much of the smart money has been wrong in the credit crisis. Many hedge funds have lost big money in the past year. That said, Messrs. Paulson, Cohen and Englander have fared better than most: Mr. Paulson's main fund is up about 20% this year; Mr. Englander's main fund is down 0.5%; and Mr. Cohen's main fund is down more than 9% through September. This compares with a 29% loss in the Dow Jones Industrial Average, year to date.

Goldman's Mr. Kostin says some hedge funds are being forced to sell to meet investor redemptions. For their part, Messrs. Cohen and Englander have moved to cash because of extreme market chaos and investor panic, according to people familiar with their thinking.

"There is a lot of uncertainty out there and some people may be saying from a timing point of view they are more comfortable on the sidelines," Mr. Kostin says, though he declined to comment on the strategies or positions of the three managers.

The moves come amid stricter new regulatory limits on short selling, a strategy of betting against stocks, which is popular with hedge funds. The Securities and Exchange Commission twice this year imposed a partial ban on short selling.

Regulators also have called for more transparency and oversight of hedge funds. The SEC also is working on a rule that would require investors, including hedge funds, to disclose their short positions to the SEC. ...

Factors affecting the stockmarket for this quarter. From yesterday's column (explained in greater detail yesterday).

1. The end of the short selling ban.

2. Margin calls.

3. Hedge fund redemptions.

4. Falling commodities prices. Oil, nickel, iron ore, etc.

5. Business retrenchments.

6. Municipal governments in crisis.

7. Falling profits. The car makers' woes are out. But there are many other industries that haven't reported their woes, yet.

8. Excess production capacity.

Attacking the wrong problem
Two women were playing golf. One teed off and watched in horror as her ball headed directly toward a foursome of men playing the next hole. The ball hit one of the men. He immediately clasped his hands together at his groin, fell to the ground and proceeded to roll around in agony.

The woman rushed down to the man, and immediately began to apologize.

'Please allow me to help. I'm a Physical Therapist and I know I could relieve your pain if you'd allow me,' she told him.

Oh no, I'll be all right. I'll be fine in a few minutes,' the man replied.

He was in obvious agony, lying in the fetal position, still clasping his hands together at his groin. At her persistence, however, he finally allowed her to help.

She gently took his hands away and laid them to the side, loosened his pants and put her hands inside.

She administered tender and artful massage for several long moments and asked, 'How does that feel'?

He replied: 'It feels great, but I still think my thumb's broken.'

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.