This is a good time to bring up an argument that has been absent recently.  I enjoy listening to personal finance talk shows from time to time.  Mostly it's folks who don't know how to make a budget or know how to make a budget but are unable to stick to it.  As a result, they're in a jam and call the host du jour to help bail them out.  From time to time, you get a caller who realizes a windfall of some sort.  Stock options, inheritance, bonus, etc.  Sometimes this is enough to pay off their home or at least put a big chunk against it.  However, caller X calls up the show with the bright idea to put the money in the market and keep debt.  Typically the responsible host will let them know how foolish this is.  While the caller explains the outsized return they will inevitably earn, the host explains the outsized risk they're assuming.  Naturally, it's tough to communicate this risk during days when the VIX is around 10.  Can we find anyone willing to do this with the VIX at current levels? Mysteriously, calls of this nature have dried up.

In real-time, I'd like to point out to those who may be considering this option.  I'm not of the mindset that it's a particularly bad idea to put some "found money" into the markets so long as you truly understand the risk.  Someone who decided to do this last summer probably has a spouse belittling them at this point.  But let me just say this from someone who understands the risk, if I were so fortunate as to run into some money that could put a substantial dent or pay off my mortgage, I'm paying off the mortgage.  Although at current levels, the thought of getting into the market with "found money" is much more attractive than it's been in quite some time for me.

For the long term, paying off the house may not be the most financially advantageous move one could make from a dollar perspective, but part of sleeping well at night is having a place to sleep.

Futures are trading limit down this morning.  This hasn't happened in a long, long .... oh wait, just a couple of weeks ago.  And on that day the market cra ... oh wait, no, it finished positive for the day.  The market is a bit of a roulette wheel at this point.  Anyone pretending to know where the market will end up in the short term is fooling you.  The only bullish chart I could find was the U.S. dollar.  Is everyone selling stocks, bonds, and commodities and hoarding dollars?  Who woulda thunk?

OPEC cuts production by 1.5 million barrels.  And oil prices surge ... no wait, tumbles nearly 7%.  Seems like bizarro world.

The only thing you can do is cut through the fog.  I've pegged values in the Dow to open up and buy some more.  This is my plan and I'm sticking to it.  My next stop is Dow 7500.  My last point was 8500 and I performed that buy a couple of weeks ago. 

Even with a dramatic sell off at the open, we're still not hitting the previous lows from two weeks ago.  And even if we cross those lows, we're still in a relatively "normal" bear market.  Does that mean it's going up from here?  Don't know.  Does that mean that it's going to remain a "normal" bear market?  No clue.  Keep in mind that the last bear market ripped the S&P 500 to the tune of 50% and the poor, poor Nasdaq still hasn't recovered its previous high.  In fact, not even close. Arguably, this is the bear that's still gripping the Nasdaq that started in 2001.  Now THAT'S an abnormal bear market. 

1. Oil prices and stocks are not as correlated as we think
2. Oil prices are not controlled by oil companies and it's simply grandstanding when we try to hold oil executives accountable for the price of the commodity.
3. When the bear hits, all assets are correlated ... they all go down.
4. SHORT SELLERS ARE NOT RESPONSIBLE FOR DOWNWARD MOVEMENT!
5. When bubbles pop they hurt.  They also cross into seemingly unrelated industries.

I don't think I've revealed anything new or earth shattering.  I'm mostly documenting for the next bear when it's "different" that time.  

Wow, XLF at 16.01 and GE at 20.04. This one is going to come down to the wire. At this point, only Mr. Market (not the huge guy) is going to know how this will end up. I have decided that I'm leaning more towards having them expire worthless because I want to sell more juiced up premium. :)

--- UPDATE 4:02 ---

Double assignment. 

I was certain that the VIX went over 50 during the drops in 2002 when the long term bottom (then) was forming.  If I go back through historical data, it isn't so.  So I'm putting this up for my own purposes.

The second thing on my mind today is market moves.  Sure, that's something I think about every day, but it can have a profound impact on my holdings.  The short puts that are in play are XLF (16 strike) and GE (20 strike).  Both, given the current volatility, are really a market day away from being back out of the money or deeply in the money.  As I mentioned, I'm actually torn on the GE assignment.  I like the idea of premium in my pocket but I also really like the idea of owning GE at 20 (or 19.40 after premium is factored in).  I think that's a long term slam dunk.  Can GE go to 0?  Sure, but I like the prospects.  The other item is XLF which I'm also torn over.  The financials have admittedly been worse than I anticipated.  I still think I can continue to write premium against C for awhile and continue to lower my cost basis, but truth be told, the market for financials seems like an abyss.  Obviously, that makes one nervous, but it also feels like a great time to buy (when fear is high).

Today is pivotal.

I've been very good about following my plan.  I've remained fairly emotionless during the recent volatility and scooped up shares the whole way down.  Yesterday I did something very stupid.  I'd be making very good progress on the upswing (as I'm sure everyone had).  So I got nervous that it wasn't going to last and put a hedge in place.  This was completely against my plan.  Then I got on a 2 hour long phone call that took me past the market close.  On my way home I realized just how stupid I was.  I lost sleep over it, so I knew it was wrong.

I closed it out first thing this morning at a loss.  I probably could've waited for the pullback, but good discipline says don't try and correct a mistake, you'll likely only make it worse.  I can already tell you, I feel a lot better.  Psychologically it still stings, but there is no longer a knot in my stomach.  The very next thing you must do (or at least I must do) is remove that quote from your display.  Almost without failure, the mistake will move back in your favor and you'll get to kick yourself twice for the same mistake.

For those who ignore vega, and many do, here's a little glimpse of how this little variable can really have a dramatic effect on your position.

I've posed this question before when it was merely theoretical, but now it's happening in real time.  Many people over the last few sessions have sold and sold big. Maybe some are gone for good, but I suspect most were selling out of panic that they might lose their nest egg.  Most likely this was done as a reaction and not in accordance with a plan.

I say regardless of the reason, I'd like to hear when you're getting back in.  If you sold at Dow 8500-9000 which was pretty darn close to the bottom, you have the real risk of the Dow gapping over your selling price as early as today!  And let's say it didn't do that, when do you get back in?  A bottom isn't known usually until well after the fact and things typically stabilize AFTER the big technical snap back ... so when do you get back in?

I always hear the big announcement from friends and on forums.  They sold and good luck to the rest of you turkeys.  But I never hear when they get back in.  I can only suspect that they realize after the fact that getting out was probably a bad idea and they lost even more than those that stayed in.  But I can only speculate.

So at the risk of sounding like a broken record, sellers, when you do get back in? 

I don't get too political on the blog even though it's the topic of a lot of my conversations with people.  For a guy that doesn't like football :O, politics is about the only subject that I can talk to people I know about.  So I occasionally like to bring up politics here and usually I save it for the weekends when the markets are closed.

So now that I've justified the post, I'd like to point out socialism failing (once again) in real-time.  The state of California is asking for at least 7 billion so that it can continue to function.  Apparently the state has already stiffed some private sector contractors and is threatening stiffing the schools here pretty soon.  Folks, California, as we well know is one of the biggest left wing states in the country.  They also have one of the highest tax rates.  The problem is, once it becomes easier to do nothing than to go out and earn things start to fall apart.  Those who were generating revenue for the state are now a state liability.  Talk about cutting those social programs that allow people to sit on their butts instead of hustle out to make a living and you'll get protests in the streets.  So what's a politician that wants to keep his job to do?  Incur debt.  Hopefully that will last until you're out of office.

Well, with the current financial state, the gig is up for the state of California.  Fortunately for them and unfortunately for the rest of us, they have the tit of the U.S. taxpayer to save their behinds this time.  But what if we were to continue down the socialist path from a national standpoint.  Where do we turn when our national healthcare becomes insolvent?  And a real example for now is social security.  That will be insolvent unless they hike  taxes to prop it up just a little bit longer.  Moving forward, you can damn well believe that folks are going to be earning a negative rate of return on their social security dollars and this is BEFORE inflation.  In other words, you're being taken.

There are two good things that can come from this crisis.  One, we flush out the weak hands (weak financial institutions, weak stock holders, weak states in this union).  Second, we get people to wake up and understand things that are important ...  your politician's reckless behavior, your 401K statement, your local and national economy.  Once these are understood and not passed off, you'll begin taking action.  Being a realist, sometimes called a pessimist, I have a feeling American Idol and sport du jour will reign as the topic of conversation in the office hallway once this passes.  And then during the next down cycle, that one will be different, <cough>.

My short puts on GE and XLF are still in play.  The GE puts were in the money on Thursday and for most of the day on Friday.  Then GE surged up 13% putting it around $21.  I'm really mixed here.  I wouldn't mind owning GE at less than $20, but I also like having the capital freed up as there are plenty of bargains on my shopping list.  The second option isn't so lucky.  My XLF $16 puts are in the money.  It was looking very bleak on Friday, but then the XLF surged 10% to close at $15.10.  It really all comes down to when the recovery is going to happen.  I've got my money on a large move to the upside that will happen at some point in the near future.  Whether it's next week or not, I have no idea.

I think it's safe to say that my short call on C is going to expire worthless.  I'm slowly dropping my cost basis on that stinker and still like it as a long term hold.  I'd like to write calls at no less than 22.50 and preferably higher.  We'll see what the market offers me next week. 

We all try to imagine what it was like in 1929 or 1930 but we at best, we may get stories that may be half truths from those that are still around to tell them.  I'm not saying 1929 was easy and the Great Depression was nothing, for crying out loud, it gets capital letters when referenced so it must be serious.  But my point this evening is to use the power of technology to capture the moment.  The Dow was swinging around hundreds of points in a matter of minutes.  People that are casual observers of the market are extremely scared and those who are more than that are getting a nervous twitch.  The market is acting strangely and the world is on edge.  To me, this is not really different than the last bear market that I've personally experienced, although some may beg to differ.  Bear markets are hard. During a bull market you may read a book or two about how capitalizing on a crash is the way to outperform the market.  When the crash hits, buy until you can buy no more and you'll surely outdo the market.  Afterall, the old adage is buy low, sell high and the first part of that equation is buying low.  So if the market crashes, what a great way to buy low, right?  Well, what they fail to mention in these books is that buying low is hard.  This is why the low buyers are rewarded.

As the market plummets hundreds of points, you start to doubt yourself.  I mean if it can fall a few hundred points an hour, surely it can fall a few hundred more, I'll just wait, right?  Well, I did that in the last bear market and lost.  Face it, you're not going to pick a bottom, so if the market it off 20%, 30%, 50%, keep buying your indexes and whatever else according to your plan.  If you don't have a plan, stay the hell out! 

When is it considered a crash?  It always seems obvious after the fact.  While this one wasn't a big and spectacular presentation like 1929 or 1987, we've lost almost 20% on the Dow in just a week.  This is certainly low.  What happens if we go lower?  Buy some more.  Just because you want to buy that doesn't mean to go all in.  And if you're going to buy, diversify ... grab indexes, not individual companies.  Like my hero Roger says, "how many companies go to 0? ... how many indexes go to 0?"

Of course, my standard disclaimer applies.  This is not a recommendation.  Do not put money in the market that is money you'll need in the next 10 years.  It's one of those things that if the market goes down 1000 points tomorrow, you'll say "ah well, let me put in some more and average out".  If you can't say that, then put that money in the bank.  Period.  As most are realizing (too late), this is not for the weak or faint of heart.  You're being introduced to risk first hand, which has been awfully quiet for the last few years.  If this is your first bear market, get used to it.

I'm in line to have a nickel thrown my way every time I hear "this time it's different".  The was the case during the last bear and this one has been no exception. Before you get in the "this time it's different" camp (and end up owing me a nickel), please consider this article at Seeking Alpha.

There's Light At the End of the Tunnel