Financials finally fall

Notice how over the years, the financials have become so overweighted when analyzing the S&P 500 the financial weightings had grown to about 30%. I had always avoided replicating the S&P when building portfolios due to this great overweighting. Better to have balance amongst industries.

Now, only XLY, consumer discretionary and XLF, Finance are below the 40 month moving average. The 40 month moving average is my standard of fair value. Stocks eventually find this level and I would prefer to wait until the stock falls to this point before buying. Otherwise, I need to hedge like crazy for years until the stock catches up with this average. Right now, only the Finance and Consumer Discretionary ETFs are at or below the 40 month moving average. The reste are still in the stratosphere. Bigger fool theory often propels overvalued stocks higher. Look at what I wrote in 2005 and see what is happening today. The fundamentals that propelled the market then are killing the market now and we are just starting.

Debt problems will ripple through the entire economy. No sector will be left unscathed. It's inevitable. What goes up must come down.

To be successful in the years to come, you must get your arms around hedging, including options and futures as well as guaranteed products such as annuities. You can make out well, if if the markets go down. It is important that you employ a skilled financial planner. Not a salesman selling insurance, mutual funds or bank products. a real financial planner will charge you a fee for his or her advice and put it in writing. This is important. If you are tooo cheap to pay for professional advice, then you deserve the results of the advice that you get. Make sure that your advice and projections and assumptions are in writing.

You can win, even when things go very badly awry.