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Protect Yourself From Dow 8,500

October 08, 2008


This "fever" -- i.e., the credit contagion -- really set in with Lehman Brothers' (LEHMQ) failure. And now the real consumer-led recession, which we've been forecasting since the beginning of the year, is here with a vengeance.

Mark my words: This fever will break. And when it does, there will be historic buying opportunities in great companies, and investors who have the cash to take advantage of it are going to make historic profits.

But I don't want to sugarcoat things when it comes to the short term. It is way too early to call a bottom in the market, because the real recession has just begun.

Markets bottom in the middle of recessions, and we're at least a few quarters away from a bottom in this consumer-led contraction.

We're in a massive worldwide de-leveraging panic that has led to forced selling and forced liquidations, and there's more pain ahead.

Emerging countries are dropping 25% in a couple of days. Sell stops and forced liquidations are hitting the market every minute -- $500 billion in withdrawals at hedge funds, $200 billion in mutual funds and gaining -- and we can't absorb it.

The Fed is providing every form of medicine possible. On Tuesday, it took over commercial paper financing, and today we received an emergency half-point rate cut.

But despite these desperate moves, this is still not the time for investors to be brave.

Lowered Expectations

Based on our latest ChangeWave survey numbers, I'm adjusting a number of my forecasts.