(5/27/08)

Executive Summary:

• In this report, I lay out my near- and intermediate-term investment themes.
• My assessment is that the economic and financial risks are exceptionally high and possibly historically unique. This is no time for complacency. A defensive stance is both warranted and prudent. A 50% - 70% (real) decline in the main stock market indexes is a distinct possibility, and portfolios should be ‘crash-proofed.'
• Heeding the calls that “a bottom is in” and “the recession could already be over” could be hazardous to your wealth.
• The recession is just beginning and will be the worst in several generations.
• Residential housing data is still accelerating to the downside, while commercial real estate is just beginning its long date with tough times. There is no bottom in sight for either.
• Inflation for life’s necessities is up, and rising energy costs will likely keep certain items at persistently high - and rising - prices for a very long time.

Bottom line: My assessment is that the financial and economic risks that currently exist are exceptional, historically unique, and possibly systemic in nature, and therefore call for non-status-quo responses. A defensive stance is both warranted and prudent. As for timing, my motto is, ‘I’d rather be a year early than a day late.’