Eyeing One More Substantial Slide

 | Dec 01, 2011 | 10:00 AM EST  | Comments
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This piece is being published on Real Money as a bonus for readers. For more of Paul Price's daily analysis, visit Real Money Pro.

Let's turn to the question we all face right now: Is this 2008 redux? If you think back to three years ago, remember that the multiple trading bottoms touched in September, October and November were just previews of the final and much more brutal March 9, 2009 climax low.

SPDR S&P 500 (SPY) -- Daily, 2008-2009
Source: BigCharts.com

There were plenty of dramatic, 180-degree surges and swoons on the way to a final nadir more than 50% below the 2008 high. Being even a few months early was very painful for in-and-out traders, and things weren't much better for those who bought and held.

Seeing "cheap" stocks get 20% to 50% cheaper can make anyone doubt their own decision-making. In the fall of 2008 you could at least get up to 2% to 3% interest in money markets and bank CDs. Meanwhile, the S&P 500 went on to double off that March 2009 low for those brave enough to buy when things appeared bleakest.

The past year's chart looks quite similar in many ways, although we've experienced many more of the violent swings than ever before. With (artificially set) near-zero interest rates, fewer good choices are facing investors this time around.

SPDR S&P 500 (SPY) -- Daily, 2011
Source: BigCharts.com

Did the true bottoms occur in early August and early October? Was yesterday's near-500-point rally in the Dow the sound of the train pulling out of the station, or merely another suckers' rally?

My biggest long-term fear is the loss of faith in paper money such as the euro and the U.S. dollar. The latest political moves to print money will inevitably lead to much higher inflation. Buy everything you can now that you can store and doesn't have a spoilage factor. Prepay for rent, insurance, fuel supplies and so forth -- everything that offers a rate lock for full payment upfront. Your final savings will more than offset any puny interest you might earn prior to actually using those items.

If you've been thinking about a new car, boat or any other durable items, buy them for cash if you have money available. Do not carry adjustable-rate debt of any type. This includes floating credit-card interest and adjustable-rate mortgages. High inflation can rear its head quickly and without warning.

My best guess on stocks is that we're likely to see one more big selloff before the European credit crisis plays out. If that occurs over the next few days, weeks or months, I'm prepared to get 100% into equities again. These will be the only actual income-producing entities left with solid assets and the ability to weather an economic perfect storm.

Keep a wish list of top-brand companies with low or no debt and products that people need, rather than want. Oil names, mineral producers, agricultural companies and top retailers should fare well in a crisis-mode economy. Firms that hold hard assets should be able to exact pricing power to keep up with inflation better than most. They also may be able to take over financially weaker competitors at distressed prices.

For now, patience may be the key. Keep a lot of dry powder on the sidelines with an eye to reentering in a big way if a bond market implosion takes things down for what I hope would be the last time. I'm perversely praying for a substantial new low well beyond what we saw in October. That would mean economic blood in the streets and panic in the air.

I've been suggesting purchase of puts on shares I believe are vulnerable in that type of scenario. Read my Real Money Pro columns from the last two weeks to see the specifics. Making some gains on the road to the bottom will give me some extra ammunition to put to work when prices are too good to pass up.

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