Big Picture for 2009

Here's the big picture: the credit crunch is still devouring the "real" economy like a pack of famished piranhas. Think of a locust swarm or army ants. Rosenberg says lending data show an increase in the severity of the credit crunch with bank lending dropping 16% annualized over the last four weeks.

The government has had to step in with new bailouts, both here and in the UK. Spain's debt rating was cut from AAA to AA+. Ireland, Greece, Portugal, and Italy are next. Why? Nobody wants to borrow except those who have too much debt already, and nobody in their right minds wants to lend to those people in this type of economy.

There's still plenty of debate between inflation and deflation. Deflation is winning hands down. Companies are cutting pay for existing workers. When was the last time that happened? Surely not in my lifetime.

The Fed is not inflating, in my mind. They are assuming bad debts that have made the US banking system insolvent. Credit is not growing. In fact, credit is still shrinking, because the Fed has not even covered all the deflation in debt markets, equity markets, and real estate markets. The Fed and the Treasury have assumed enough of the losses in the banking system to prevent a full-scale meltdown, but they
haven't been able to prevent further cutbacks in credit and lending.

Going forward through the first half of this year, equities face hurricane force headwinds. If equity is leveraged debt, and debt is in doubt of being paid off, equities will be under severe pressure. Deflation is also extremely bearish for corporate profits. My big picture strategy is therefore to leverage cash by selling short. At this point in time, I am getting close to taking some profits as the market retests the November lows. If the market drops through, I will continue to take more. I believe that the market is still in bear market mode, as today's 150-point drop on the messiah's inauguration indicates selling on good news. Gold is the only thing I want to be long right now.