The fact is that today’s stock markets were extraordinary in their strength. Emerging markets (proxy EEM) up about 20% and the S&P 500 (proxy SPY) up about 11%.

There are important positive facts to consider:

for the past couple of weeks SPY has been trading sideways — that’s good. SPY went up 11% today — that’s good (although going up 11% after going down about 41% in the past 52 weeks, puts the index at about 35% down from its starting point). according to Bloomberg, before today, the MSCI World Index was trading at about 10.5 times trailing earnings — an historically attractive multiple. according to a table published by dshort.com, today’s rise in the S&P 500 was the 7th largest percentage gain since 1928 — that’s good (although dshort.com points out that almost all of the really powerful one day rallies in the past were inside bear markets that continued after the rally). the Fed ...

Market timing is not a good idea, but standing aside when a global train wreck is happening in proportions that rival the worst periods in modern history is not market timing — it is self-preservation.

Being out of the market makes deciding how to re-enter problematic, and some opportunity could be missed, but far greater opportunity is missed if capital is destroyed.

We are in cash from 80% to 100% in various accounts since mid-summer.

We believe that discretion is the better part of valor in this situation. Nobody really knows what comes next. We are in a Black Swan. The unknown unknowns dominate.

In times of such lack of clarity, we think keeping powder dry is probably a good thing to do.

As Alan Abelson said in his editorial this week in Barron’s:

The climate, in our jaundiced view, remains treacherous. The economy is destined to get worse - much worse, before it gets

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This a letter sent today to our clients.   It may be useful to you as well.

Clients and Friends,

Last night and this morning, I received several calls and emails asking my opinion about whether the rally on Monday was going to stick and whether a bottom is in.

I didn’t know then and really don’t know now.  Many powerful forces have been applied by US and European governments, which include variously and among other things:

guaranteeing inter-bank loans nationalizing banks massive equity infusions in banks purchase of toxic loans guarantee of certain money market fund accounts increasing limits or removing limits from bank insured deposits temporary unlimited guarantee of business checking acct assets coordinated lowering of overnight interest rates converting key investment banks to commercial banks (more supervision, lower leverage allowed, and access to Fed $) discussion of tax credits restrictions on shorting certain financial stocks FASB seeking to relax mark-to-market rules when SEC declares markets dysfunctional prospective replacement of mark-to-market rules in Europe with ...