You’re living on borrowed time, StormWatcher,

I told you on Tuesday that a rally to 910 on the S&P 500 gives you all you need to finish your selling.  We got above 910 for a brief spell on Wednesday and Thursday and are near there again today, so I hope you finished your selling on schedule.

Add these 2 stocks to your sell list for today or Monday: Sallie Mae (SLM), the student lender, and Carnival (CCL).  Colleges, cruises, cut.

Examine the adjustments you are making in your own life.  Something’s gotta give.  Hello Wal-Mart, goodbye Kohl’s… hello McDonald’s, goodbye Morton’s Steakhouse… hello TIPS, goodbye Madoff.

Use the rally to sell.  Get it done and behind you today (if the bounce holds).  Monday latest.

Tell me how it went here.

WHAT HAPPENS NEXT

The next step is down, and it could be a doozy.  A new low soon after the holidays could signal a final capitulation, the point where all the sellers have sold.   Or the big turnaround could come as late as the spring.  Either way, I’ll be here to guide you when it’s time to buy with both fists.

Don’t just do something, stand there.  Use the holidays to reflect: The spirit of the past 8 years is captured by the image of glad-handing Bernie Madoff.  There’s one in every golf club, one in every company, scores of them in most banks and hundreds of them in government.  Why don’t they arrest Barney Frank or Chris Dodd, too?

My point: The charmers who got us INTO this mess won’t be the ones who can get us out.  It’s back-to-school time for you.  Get a hold of a stack of earnings reports.  Read them.  Buffett, when he gave this advice, met the objections, “But, sir, that’s a lot of reading” with the recommendation: Start at A.

Then—AFTER the January capitulation, or a wee bit later if necessary—we’ll be ready to act.

DEFLATION: AN
OPPORTUNITY

What Newton’s Law is to physicists, Moore’s Law is to geeks.  It states that whatever you make now, you’ll be able to run it twice as fast or make it half the size in 18 months.  It’s the ultimate in deflation: everything you do, worthless in a little over a year.

So in deflation, geeks are the guys who know what to do.

Look at Intel, Oracle, IBM.  All will thrive in the Great Deflation of 2009.  But the winning tech blue chip is none of these.  We’ll talk more about this surprise comeback tech on Tuesday.

OBAMA DISCOUNT

Told you about Lockheed Martin (LMT).  Pick it up under $83—it’s at $81.29 now.

Another sector selling off under the illusion that President Obama will slam it is the oil-and-gas producers.  Occidental Petroleum (OXY) is the best run oil major.  It’s like Exxon, with lots of free cash flow, but far more successful at growing production.  A screaming buy under $52.  Wait for that number—promise?

BERNIE, BARNEY AND BENNY

We’ve talked about Bernie Madoff and Barney Frank.  Round out the 3 Stooges with Ben Bernanke.  Rates down to zero?  Doesn’t he ever tire of pushing on a string?  Free money is just another Ponzi scheme.  Keep your hip waders on, StormWatchers!

Till Tuesday,

Richard