Flight to Safety Picks Up Steam

10/06/2008 2:00 pm EST

Focus: ETFS

Jim Farrish

Founder and CIO, Jim's Notes

Last week's winners?

That's starting to sound more like an oxymoron. Scanning the list brings up iShares Lehman 10-20 year Treasury Bond ETF, (NYSEArca: TLH), up 2% last week.  The losers are easy to spot: The Standard & Poor's 500 index lost 9.4%, the Nasdaq Composite index lost 10.8%, and the Dow Jones Industrial Average lost 7.3%.

The record down week sent many investors scrambling for the exits. Comments from professional money managers could be summarized in this one: "No stocks are going up any more, so you have to sell them."

Since Treasury secretary Henry M. Paulson Jr. went to Congress two and a half weeks ago to discuss his proposed bailout of the financial system, the markets have been in a freefall. The vote to approve the bailout plan on Friday didn't help as the major indexes sold off more than 4% from the high.

Scanning the headlines over the weekend, I found three negative articles on the bailout for every positive one—the general consensus being that it's not enough. The challenge revolves around the economic outlook. The bill does nothing to help the economy. While it wasn't intended to, this was a housing/Wall Street bailout, not an economic bailout.

To bail out the economy, we would have to offer tax cuts, tax credits, and other incentives to get spending stimulated. I am not hopeful that will happen any time soon. This leaves the downside of the market to be dealt with. Europe and Asia over the weekend started work on their own bailout packages for their financial systems.

All of this combined is setting a negative tone to start the week. I would be very cautious here in the short term. I am constantly reminding investors that cash is a sector and I remain heavily invested in cash currently. There will be opportunities as a result of this mess, but be patient in developing your positions. I am reminded of a quote by Will Rogers: "You can be on the right track, and still get run over."

Jim Farrish, founder and editor of Melbourne, Florida-based SectorExchange.com, writes regularly about sectors and speaks widely about investing and money management.

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