I don’t want to advise you regarding how you should invest but I can give you my nuanced view. First, equities are at a level that is just fine. But, the general trend in bear markets is for equities to reach deeply oversold conditions and to reflect monster value. That just isn’t the case today.

But, of course bear market rallies can be huge and can last for a very long time (arguably 2002-2007 was a bear market rally).

The CRE problem is pretty huge as are credit cards, but do they mean that we are about to see a second leg down? I don’t know. No one really does at this point because the situation is at such a turning point.

My gut says the real economy is recovering right now and that we are going to see positive GDP numbers by Q4 2009 (so at the end of January 2010), CRE market not withstanding.

But my gut also says this is a bear market rally and that one must proceed with caution. Until we have worked through the bad debt, one can’t be sure there isn’t more pain to come for U.S. equities.

As for flyers, no I would not take one, there is too much uncertainty. So, index funds are out for me. I would look at TIPS. Energy Funds, Gold funds, commodity funds. Asia Funds. There are potentially lots of good opportunities out there.

Do you think that the surprises will be to the upside even with the looming hammer of commercial real estate mortgage issues? What about the effects of the imminent waves of residential foreclosures?

In San Diego, my friend tells me there are large numbers of junk houses on the market for $400K, and banks holding back lots more.

For a lot of us, our 401K money is captive to very few investment choices which are all closely tied to the overall market, and none of which offers meaningful inflation protection (i.e. natural resources, etc).

So my choices are to roll the dice that this is a bull market (already up 25%), OR stand pat in my wavering conviction that this is a bear market head fake. I know I have a lot of company who are “fish in a barrel” like me.

Folks like Tyler Durden seem to give convincing clues that there is some kind of short squeeze going on with SP 500 futures. It certainly feels to me like “higher powers” are trying to stampede retail investors to jump in and join the herd.

Here are my questions:
- Can you tell me what your GUT says about the real economy right now?
- same question about the direction of the overall market?
- would you take a flyer on this market with the remainder of your 401K?

Thanks for reading…

Barry