Conversation is fluid between those who believe this is the best time to buy stocks and those who believe that it is the worst time.

Pure contrarian thinking gets more excited about the possibilities the more negative the news gets. They pray for blood in the streets. The best ally of the contrarians is the media who tend to more negative than reality, driving panic and excessive selling. True contrarians must ignore the media. It takes deliberate focus.

On the good side is that there is enormous liquidity in the market. While the loose monetary policy under Greenspan is largely to blame for the financial panic, the fed is responding to this crisis with even greater liquidity. This money must eventually go somewhere. Fear is keeping it in low yield and low risk invenstment.

While unemployment is rapidly growing it is still low comparative to other recessions, and a fraction of the numbers during the Great Depression.

For the time being inflation is low, fuel prices are down as well as other industrial commodities, housing is far more affordable, and wage increases will be restrained by the poor business climate.

Historically stock prices are low, but that does not mean that they can not go lower. A very bright close friend in the real estate business noted that the market can remain irrational much longer than most people can remain liquid.

This does not mean that business will get better quickly or that Obama has the right answer. Raising taxes, reducing deductions, appointing federal czars to ‘oversee’ private industries, bailing out dying businesses, promoting unionization, subsidizing bad behavior, trying to support housing prices that were inflated by poor fed policy, massively increasing spending on health care, education, and every other ‘worthy’ cause, increasing welfare spending, lengthening unemployment benefits, massive infrastructure outlays during a time of declining earnings and tax generating income seems antithetical to every lesson we have learned in the last 100 years about fiscal discipline.

Obama has clearly fulfilled his campaign promise of change but he has avoided the far more difficult problem of choice. He intends to have it all. The street understands the tremendous risk of his policies.

The contrarian choice believes that we will return to a historical trend. The market extremities that flew above the mean have dropped well below the mean and will eventually return to the mean.

But if Obama’s radical reversal of numerous policies at one time signals a reversal of a long term trend then the contrarians may be wrong. Investors constantly read the disclaimer that past results are not indicative of future expectations, but they may be having trouble truly believing it at a time when they should be giving it very special consideration.

While some stocks are selling at valuations lower than we have ever seen, that doesn’t mean this market is without real risk. With such dramatic changes the game may be changed for years to come.

But certainty in the market carries a very high premium. The two best assets now are patience and cash. It will likely be a slow slugfest to return to market highs. But it would be a good time to start buying the strongest players in the weakest industries. The market may have long discounted the worst that can happen in those industries. A reasonable speculation would be to start slowly placing money in a low cost index fund.

It seems simple to acknowledge the wisdom of buying low and selling high, but this market clarifies why some wisdom that seems easy to understand can be so difficult to execute.

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