The Sun Will Come Out … Tomorrow …

This post is a guest contribution by Bennet Sedacca*, President of Atlantic Advisors Asset Management.

The sun will come out tomorrow, bet your bottom dollar, that tomorrow, there’ll be Sun! Just thinkin’ about tomorrow clears away the cobwebs and the sorrow ‘til there’s none!!!!!– From the Broadway Show, Annie.

Let me be blunt; the world is mired in a secular bear market in stocks.

1. The Credit Crisis that we have been expecting is here.
2. Inflation in the things that we need is on the rise.
3. Unemployment rates are on the increase.
4. We are at war on many fronts.
5. Social acrimony is beginning to build.
6. Federal authorities from the Treasury Department to the Federal Reserve to the European Central Bank to the Securities and Exchange Commission intervene in our markets daily, making our lives as professional money managers more difficult that they should be under truly “free” markets.
7. Real-estate prices are plummeting.
8. Credit is available only for a few very healthy companies and those that the Fed feels are important enough to bail out while the rest of us have to pay for our mistakes.

So, are you ready to walk to your nearest ledge yet?

The economy and the credit/equity markets are anything but a walk in the park these days. But hey, this game is not for amateurs and this cycle will most certainly separate those that a) understand the big picture, b) know how to measure risk and c) know how to preserve capital. Why? Because the sun WILL come out tomorrow.

Tomorrow in this case may be a bit far off, but it is out there, and the goal is to make it all the way to tomorrow with your capital intact and hopefully with some gains along the way.

The difference between realists and “perma-bears” (I consider myself a realist) is that “perma-bears” wake up praying for rain and don’t like to plan for tomorrow. Realists, on the other hand, look to get through the rainy days and then pounce when the sun is about to peek out again.

How far away is “tomorrow”?
Ah yes, the $64 billion question. Over the last few years I have written a few different versions of the roadmap that I expect the financial markets to follow and no matter what methodology I use, I keep coming up with a “tomorrow” in mid to late 2010 for equities. This does not mean, of course, that money cannot be made between now and “tomorrow” – it just means that high-quality fixed-income securities, low-beta investing and a hedged technique are the order of the day. Folks are starting to figure out that traditional “long-only investing” means that you have to be invested for a long time. I have no problem with that philosophy as long as your time horizon is 100 years and that you don’t mind 15- to 17-year periods in between when you don’t make any money, like the one we are in now. I have to be frank and say that I have yet to meet an investor with a 100-year time horizon and the patience to sit through a secular bear market in stocks and the volatility that goes with it.