Absolute Return Portfolio Management LLC

Complacency is your worst enemy. It's a curious phenomena in speaking with many investors that have endured such huge losses (NOT under my watch however) who now assume "things can't get any worse" and with the recent rally that "we've hit bottom".

Well, I hate to take away the punch bowl just a everyone is starting to feel better. The reality is that more declines are coming our way and unless you and your financial advisor are prepared you are quite likely to see further losses.

This bear market as well as the previous Tech Wreck Bear of 2000-2002 should be your "proving grounds" for your portfolios. If you experienced large losses on both occasions, it is fair to say that your present managers/advisors don't have the capability, flexibility or philosophy to deal with the climate in which we find ourselves.

Our approach provides the flexibility to either be fully invested or 100% in money markets for all asset classes in an effort to reduce volatility and portfolio risks. Anyone following this newsletter through this bear market knows the success and necessity of this more dynamic approach.

There's an old Wall Street saying that "Bulls Make Money, Bears Make Money but PIGS never do". What we've seen in the last two weeks is a skewering of the hind sides of the shorts who overstayed their positions and got turned into SHORT-kabobs by the rally. However, the Bulls aren't any less piggish as we've seen sentiment rapidly cycle from the most extreme bearishness to outright bullishness.

Two weeks ago, on March 5th, I issued our first market "ALERT" in nearly a year suggesting a market bottom was imminent. I recommended traders close out shorts, halt any selling campaign s and prepare their buying lists but wait for confirmation that the trend had indeed changed. That advice proved quite timely as global equity markets bottomed out only two days later.

One of the most unique, if not disturbing, aspects of this bear market is the near manic depressive rapid cycling of sentiment from one extreme to another in short periods of time. Only two weeks ago I forecast an imminent rally because bearish sentiment had reached historic extremes. Yet, today only two weeks later sentiment has gone from utter despair to very high levels of bullish sentiment.

Two sentiment measures upon which I put a lot of weight are seeing bullish sentiment extremes that are equivalent to other significant tops in this bear market. This much bullish sentiment at any time, particularly so close to a previously opposite extreme, is a stark warning that this bear market is not finished.

As I noted in my March 5th market "ALERT" I couldn't be sure if the anticipated rally would be the beginning of a new bull market of just a bear market rally. Today, I can say with near certainty that what we've witnessed over the past two weeks is just another bear market rally which should top over the coming weeks and then plunge to lower lows or, at least, to retest the lows of earlier this month.

What to do today:

Prepare as you would for another bear market decline. Jettison weak positions or those that have hit upside price targets. Alter your equity exposure to its minimal position. Don't get greedy...get out. If you can't bring yourself to be proactive for fear of losing out on gains then put tight stops on any long equity positions.

I suspect the topping process may take a few weeks as tops typically do. If everything lines up with more sentiment indicators showing bullish extremes while market internals weaken it could provide another shorting opportunity.

As I am moving back to a defensive outlook I will hold off on any commentary for international regions.

ASIA (ex-Japan) -

EMERGING MARKETS -

EURO -

JAPAN -

LATIN AMERICA (LatAm) -

USA -
(see Equity Style section for specifics)

GOLD Bullion - (GLD) - On a BUY. Speculators might be interested in knowing that the valuations of gold equities (basis XAU) is the lowest we have witnessed in the 25+ years for which we have history. This suggests that once the equity market weakness subsides there could be tremendous potential in this area. However, be forewarned that the risks and volatility of gold stocks is also quite high.

Goldman Sachs Commodity Index (GSG) (largely energy ) and DB Commodity Index Tracking Fund (DBC) on a SELL . Any continued strength in oil, which is heavily weighted in this fund, could see a flip to a BUY signal.

Real Estate - Our models rank REITs as a SELL.

Absolute Return Portfolio Management LLC provides absolute return oriented portfolio management and institutional research on global macro trends including equity style rotation, global regional equity trends, short-selling and market neutral strategies as well as fixed income strategies. Contact us for information on account minimums and institutional research offerings.

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