The housing sector will take several months to correct the damage that has occurred. Housing prices must come down to attract buyers, and we have not seen enough of a pullback in prices to entice new investment.

Last Week:

On Tuesday, investors were disappointed when the Fed announced it was cutting the Fed funds and discount rates by 25 basis points. As a result, the Dow sold off -753 points (5.34%) for the week, and the S&P and NASDAQ sold off -93 points (6.01%) and 169 points (6.06%) respectively.

At the close on Friday;

DJIA: 13,339.85, down 178.11
S&P 500: 1,467.95, down 20.46
NASDAQ Composite: 2,635.70, down 32.80

Weakest groups were REITs and retail, followed by banks, housing, gold and energy.

Citigroup was downgraded because of its $49 billion exposure to structured investment vehicle (SIV) assets. The big problem for Citigroup is no one knows how much of these SIVs are hidden in off-balance sheet transactions.

As Q3 earnings come to a close, the y/o/y results are down -20% from Q3 2006. If this trend continues next quarter, the talks of an earnings recession will become a reality.

After a few years of nice gains, investors need to prepare themselves for tougher times ahead. A manic depressive market environment can be very rewarding to investors who have cash and patience. The biggest mistake that investors make is they have no patience.

I realize that today's "boo-yah' mentality may be tough to shake, but investors need to overcome the urge that they always have to be doing something when it comes to the market. At least for the time being, you need to make a wish-list of stocks, and mutual funds you want to own, and look back to their 2000-2003 prices to get an idea of when to buy them.

I say this because we may be staring at a stock market that could correct severely in the months ahead.

Economic News:

U.S Economic News for this Week

Inflation News: Econoday

CPI

PPI

- According to the National Association of Realtors, pending homes sales increased 0.6% in October, but sale are down -18.4% from October 2006. Going back to August 2005, sale are down -32.4%.

Alan Greenspan recently told NPR that the odds of recession are clearly rising and economic growth is getting close to stall speed.

- Inflation is finally beginning to penetrate the governments carefully designed numbers as the Consumer Price Index (CPI) jumped 0.8%, and the Producer Price Index (PPI) rose 3.2%.

This recent evidence is suggesting that inflation may limit the Fed's ability to cut interest rates.

For the week:

-Gold closed at $798.10/oz down from $800.00 last week but up from $789.90 two weeks ago.

-The Commodities CRB Index closed at 348.60, up from 342.92 last week, and up from 339.84 two weeks ago. The index hit a high of 359.05 on November the 7th.

-Crude Oil closed at $91.55 /bbl up from $88.28 last week and up from $88.71 two weeks ago. Three weeks ago, crude closed at $98.18.

-The U.S. Dollar close at 77.45 up from 76.34 last week and up from 76.15 two weeks ago.

We are altering our sell strategy a bit to prepare for a tough year in 2008. At Dow 14,000, or S&P 1525, we will reduce our allocations by 5-10%

Our current asset allocation is as follows;

70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

At Dow 12,500, or 1400, we will raise our allocation to the stock market by 5% to;

75% Equities: (Normally 95%) Aggressive
65% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

At Dow 14,000, S&P 1525, we will reduce our allocation models by 5-10% to;

55% Equities: (Normally 95%) Aggressive
45% Equities: (Normally 80%) Moderately Aggressive
35% Equities: (Normally 60%) Moderate
15% Equities: (Normally 40%) Moderately Conservative
10% Equities: (Normally 20%) Conservative