At least for now it seems as if the "dark forces" of "doom and gloom" are winning the battle...The self fulfilling prophecy of the "Armageddon" economic forecasts continues to play out in a very dangerous "domino effect" scenario. Short selling ban implemented by the SEC, combined with a "default" of Lehman and Icelandic banks, seems to have completely broken the back of the multi trillion dollar "safe haven" hedge fund industry by taking away their ability to hedge against losses. This in turn led to the unprecedented by historical standards selling pressure -$300B+ in redemptions over a very short period of time and led to the complete chaos in the world economy...

Rapid share and debt price declines of September/October period unleashed the deleveraging process this world has never seen before. This in turn has led to the "panic cash hoarding" by virtually every major financial institution out there, which has put an exorbitant amount of fear into strategic planning processes of every business leader out there. This obviously means lower earnings projections, expense reductions (layoffs) and reduced capital spending.

All of this theoretically should have not come as a surprise. The fact that the United States recession has entered a "domestic recession" late last year has been clear to virtually everyone except most of the "fools" on Wall Street and in Washington. However, given the 35%+ stock price declines, one could also easily argue that this recession has been already priced into the equities, and that now, given the "fact" that Ben, Hank and Co have virtually eliminated probability of a "major" financial institution going out of business in the next 6-12 months, many stocks are now relatively inexpensive...

Unfortunately, most of the "worthless" Wall Street analysts seem to have been way too busy worrying about their job security instead of adjusting earnings projections down to the "new reality" prior/during the most recent collapse... I still can't believe that investors are willing to slice 50% of the Tech Industry market capitalization despite the fact that it is still growing albeit modestly? How about healthcare- earnings so far are up 24% from last year, but the stocks keep plunging...

http://online.wsj.com/mdc/public/page/2_3024-industryearn.html?mod=topnav_2_3000

As I mentioned before- I believe that the "Armageddon" fears are way overdone, but the biggest fear now is that we are moving increasingly close to the dangerous "self fulfilling prophecy" effect on global currency flows, which might in turn trigger massive wave of problems for numerous smaller countries (Estonia, Latvia, Hungary etc) with high current account deficits and will eventually require a "coordinated bailout" by the US/EU/Japanese government...

But regardless of how much the S&P 500 or Dow fall in the next few week because of the redemption driven selling pressure, I think that the number of undervalued stocks out there has now finally reached a point where long term risks are firmly in favor bulls instead of bears... That said, my portfolio is still very heavily weighted towards higher yielding preferred stocks of big name financial companies and also of "closed end" buy-write funds selling at massive discounts to their NAVs and paying 15-20% dividends...

The main reason for this is the fact that while I am now a long term equities "optimist", it is quite possible that markets might go nowhere for a prolonged period of time, which would imply that most of the return my fund might earn in the next several months will come mainly from dividends...

By the way, please feel free to ask questions in the comments section- I think actively engaging in a Q&A session could help readers exchange specific investing ideas etc...

Stay safe out there and don't panic- we have plenty of fear out there already...

P.S. No one cares about fundamentals any more, it's all about liquidity- quote of the day:

``Funds are getting redemptions so are having to sell into a weak market, and if they can't sell the equity they may sell the debt as a proxy.''