I am sure you all remember the childhood story and proverb about the boy who kept crying "WOLF," to warn the town and every time he did no wolf appeared.  He cried wolf so often that eventually people stopped listening to him, until one day an actual wolf did appear and ate all the townspeople.  Or something to that effect!

This Labor Day week began with a bang and seemingly ended with a whimper.  The bang was a deep sell-off while the whimper was Thursday and Friday's up market on light volume prior to the holiday weekend.  After Monday's sell-off, and continuing into Friday, the talking heads and headlines were all over the place, with some news warning the market is correcting and could go down severely, while other news heralding hope on economic reports that are not as severe as expected.  Here are samplings of these headlines:

U.S. Payroll Losses Slow, Unemployment Rises to 9.7%

Japanese businesses cut spending for a ninth quarter as the global recession squeezed profits

South Korea and Australia warn against early stimulus withdrawal, fear that such policies may spur asset bubbles.

Recovery may not be sustainable, with a "significant chance" of contracting again, Nobel Prize-winning economist Joseph Stiglitz said.

Retail Sales' Slide Less Than Feared; Are Better Days Ahead?

As Spain's jobless rate rockets to 18.5%, stocks look the other way

IMF head sees slow recovery, defends dollar's role

Dallas Fed Chief warns of 'deflationary risk'

If the recession is over, why is no one hiring?

What can we draw from this mixed bag of news?  For one thing we can safely assume that no one really knows what is going on, including yours truly.  A sobering thought.  For another, we can conclude that human nature will cause some to believe the bad news and act upon it, while others will believe the positive news and act upon that.  And that is precisely what is probably going on in the Market.

Much of the headlines listed above are on topics we have already discussed in this newsletter; the role of the dollar, inflation/deflation issues, lack of cooperation amongst the world central banks as dangerous to the recovery, 10% unemployment as we reported back in March, and much more.  What is clear to this writer is that our portfolio has so far withstood this past weeks sell-off, as well as other previous sell-offs in June through August.  That means that while we suffered losses early in the week, there were still buyers out there jumping in on the dips which pushed our holdings up.  Ultimately, our number one concern is how is our portfolio holding up and should we take profits off the table or not?  We are not interested in trying to predict which pundit is right.

I indicated last week that we were ready to sell and take profits as the market was beginning to show signs of lethargy.  Early this week this perception was confirmed but due to the percentage gains we had in our current portfolio I felt we had the luxury of a wait and see attitude.  As it turns out our stocks regained those early losses due to the aforementioned buying later in the week.

For quite some time I have said to people if the Market was linear, then everyone would always know when to get in and when to get out.  But as the past few months have shown, with more bad news than good driving events, the market does not move in a straight linear fashion.  It is much like a tree branch with leaves; the branch represents the market and the leaves are the investors.  The market shakes when there is wind and sometimes it shakes very severely from either a lot of hot air or a lot of cold air.  From this shaking some of the leaves drop off while others remain attached.

During this past week a lot of shaking occurred, but from my vantage point I have not seen a lot of leaves dropping.  If this were truly a turn to the negative for the Market then we would have seen much more selling going on.  Instead, we have seen some buying, albeit very light buying.  As we head into this Labor Day weekend and Tuesday's re-opening of the Market, I am sure that some institutional investors will be assessing how much more of this market recovery they are willing to miss due to lack of fundamentals and their own fear, and whether or not now is the time to make up for lost opportunities before the end of the year?  There will also be other institutional investors assessing whether they should move to the sidelines and reduce positions.

For now, our strategy is to listen to and watch what the market is doing.  We will be ready to take profits if things turn severe.  We will continue to look for companies to buy that are showing strong earnings and sales and profit growth.  We will be ready to sell weak positions and replace them with stronger candidates.  We will be ready to go all cash and get out of the market if significant selling occurs in the Market.  And, we will be ready to go all in with measured positions from our watch list if there is significant buying in the Market.