The comments I posted in July took about two months to happen. The Dow made a new recovery high (lower high), and then began its volatile journey downward to make a new lower low.

If the Federal Reserve and the Treasury Department had not fashioned a massive bailout of the financial sector, I am certain the markets would have gone into free fall - perhaps with the Dow plunging another 1,000 points.

According to Bloomberg Financial, Wall Street firms have been provided with $1.5 trillion to keep the markets from imploding. The stock market has gained back an estimated $1 trillion since making a new low. About $2.5 trillion of the several trillion dollars lost to the sub prime debacle have been recovered.

In attempting to project where the economy and the market is headed, you can't depend on past market collapses to provide a road map. We are in virgin territory. At no time in the past did a national credit crunch come anywhere near current dimensions. Few people have not been damaged in one way or another.

As I wrote in the September issue of Kenneth Coleman's Investment Tracker, investing in this stock market is like trying to hold on to a greased pig. In fact, the pig is as greasy as it's ever been in my lifetime. Even Treasury bills will lose you money because inflation is close to five percent in real terms. In real terms, you are certain to lose a little over three percent invested in America's safest investment (T-bills).

The stock market moved higher September 19 based on the bailouts and the suspension of short selling. Will this be a long-term fix or is it just a finger in the dike? Today, the market took back the gain from September 19, closing down over 370 points. Investors are still trying to digest the government's bailout plan and what it will mean to them. In the meantime, oil and gold surged.

I suggest you keep at least 25 percent of your portfolio in gold (the physical stuff, not ETFs). If you have more than that, you might want to consider selling the excess.

Why did the sub prime debacle even occur? What will happen politically after January 2009? The outcome of this presidential election will make a big difference on the markets and the economy for the future. I will discuss both of these subjects in the November issue of my newsletter.

Sincerely,
Kenneth Coleman