Two More Banks Fail This Week

Two more banks were shut down by federal regulators late Friday, who sold the banks' deposits to Mutual of Omaha Bank. It brings to seven the number of bank failures so far this year. The Federal Deposit Insurance Corp. said it was appointed receiver of First National Bank of Nevada, based in Reno, Nev., and First Heritage Bank of Newport Beach, Calif. - both units of First National Bank Holding Co., of Scottsdale, Ariz.

Back in the late 80s and early 90s there were over 1,000 banks that failed. I think that we will see at least that amount in the coming 1-2 years before the current credit crunch has played out.

For investors there’s nothing more important than recognizing that business, the economy, and markets always move in cycles, not endless straight lines. Recessions follow boom times, bear markets follow bull markets, bull markets follow bear markets – every time. This current bear market will not likely play itself out until sometime in 2010. The good news is there will be opportunities to capitalize on bear market rallies from now until then.

For now keep your cash on the sideline and wait for a massive panic sell-off before committing any money to the market. Investing in the current market can be compared to a job of an airline pilot - Months and months of boredom followed by shear moment of terror.

Scary Chart

Look at a long term chart of the S&P500 - it made a double top in 2000 and 2007. If history repeats its self, it will bottom around 750 in 2010. That’s around 40% lower than where it is right now. No market goes straight up or straight down so it’s possible to make money in down markets on counter trend rallies – but it is not easy. The scenario is similar to what happened in 2000 when the techs lead the market into bear territory after coming out of a huge bubble. This time it is housing and the credit markets leading the bear after the huge real estate bubble from 2003-2006.

DOW FLAT FOR THE WEEK

I expected the market to be flat to up this week but it actually declined a modest .5%. I still think we have not seen a bottom yet and we need to have more selling pressure along with some more investor pain. One indicator I’m watching to trigger a buy signal is the VIX. The VIX is an indicator of investor pessimism. The higher it goes the more pessimists the average investors are. Anytime in the past year when the VIX has reached over 30 a big multi week rally has ensued.

It’s a good time to get your shopping list together. My pickS will be 2:1 leveraged ETFs and mutual funds that will soar twice as much as the market when we get a snap back rally.

UYG is the financial index that has been beaten down
QLD is the NASDAQ and technology market
UGPSX is a China fund that has been crushed in this global bear market.

All these will be excellent buys and I expect they will go up at least 25% in the short term once the bottom is in place .