LITERALLY going through a slow motion crash right now, the U.S. housing market is in freefall, oil is on the decline .. so the question is .. where should you invest today to make money? I recently had a money manager, responsible for almost $500 million dollars, ask me this question to get my perspective. Like everyone else, he’s confused (and likely a little scared) about the depth and speed at which things seem to be coming undone. My advice to him was that until things start to settle down (which, by the way, will come almost as quickly as this last 2 weeks of crazy turbulence have come), I would suggest remaining in cash. Almost every asset class is in decline right now, and the markets are not following ANY fundamental or logical principles — what you’re seeing right now is MASSIVE emotional response to uncertainty. For example, shares in the Royal Bank of Canada lost 10% yesterday – in 1 day, BILLIONS of dollars wiped away. Ironically, the same day, Canada’s banking system was named as the STRONGEST banking system in the entire world – stronger than Switzerland, Sweden and Luxembourg. Yet, RBC dropped 10%, out of all the anxiety and fear in the market place. There is NO logic or fundamental rationality in the markets today. Things are happening that, in the context of a normal market, would NEVER happen. Yet, people are so afraid right now, they’re doing crazy things for all the wrong reasons. How can you explain that, when Canada’s banking system is named the STRONGEST in the world (which to investors should mean SAFE and SECURE), and the U.S. economy is staggering towards a ravine, that the Canadian dollar DROPPED 3 cents against the U.S. dollar? Some pundits tell you it’s because of oil prices plummeting, and because Canada’s so reliant on resources, that’s affecting the dollar. Ok, that makes some sense. But if you look at the actual price of oil, is the price of $80 making any sense? I believe we have a fundamental supply and demand problem with oil that will ultimately take it MUCH higher (I think we’ll see $200 oil in 2009). However, everyone ignores the fundamentals in this kind of market. Everyone’s selling in the off-chance that MAYBE it goes lower, so it becomes a self-fulfilling prophecy. The hedge funds and mutual funds are having to sell everything, because there are record numbers of people demanding their money back. So they have to get into a liquid position, and to do so, they just start selling things indiscriminantly, causing the prices to collapse. It’s actually quite entertaining, how ridiculous the things happening are right now. Here’s the good news… I believe we’re in the midst of what we call “market capitulation“. This is the point in time where almost EVERYONE throws their hands up and gives in. The white flag gets waved, and people say they’re OUT and never investing again. This is what Sir John Templeton called the point of “maximum pessimism“. His theory (which he proved true over and over) was that when the markets were at the HIGH of pessimism, THAT was the best time to be buying. Are we there yet? I don’t think so. But I AM hopeful that it’s just around the corner. The stock markets are largely back to 2002 and 2003 levels, losing 40% or even 50% — or MORE — to where things where back then. A lot of great things (companies and real estate) are on sale right now. I’m not saying TODAY is the best to jump in, because I think there are still a couple or few weeks of nervous, anxious and emotional investors to throw in the towel. But we are now MUCH closer to end of the decline, than we are to the beginning. Have your cash standing by, because the opportunities are about to start presenting themselves!]]>