Summer is over. Nothing has changed. The economy is showing no signs of a long term improvement. Investors have no real direction. Reak estate has had a few pops but there is no sign of a bottom. The list of problem banks has grown. The FDIC is prepared to borrow money from the Fed if it needs to. There is no where to hide and cash rates are low. So we wait and see.

Today we wait for hurricane Gustav to reach the Gulf. There is a lot of concern that it will do a lot of damage to oil rigs. Investors don't care much about people or houses, just oil rigs. More than likely this will not be a huge problem unless there is a real catastrophe. The good news is that oil prices have dropped over the past month due to speculators taking some money off the table in the midst of a global slowdown. It is anyone's guess as to what could happen over the weekend.

I have been asked many times if oil is still a good investment. I have always viewed it as a hedge or an offset in a portfolio. This is true with all of the oil, materials and commodity industries. I don't think the demand for oil and commodities is going to evaporate any time soon. The markets got ahead of themselves and now they are retrenching into what will end up being more reasonable and realistic levels. The hot money will pull - and has pulled the plug on oil stocks but I don't think we are going back to where we were  three or four years ago. So I think that the oil and commodity industry - longer term (years) will continue to be a good investment and should be held only as a portion, say 10-20% of an overall portfolio. If oil is doing poorly, chances are the lower energy prices will take pressure off the economy and that should ultimately be good for everything else. For now, we will see some gyrations due to the storm and in a month or so we will hear all the talk about how cold the winter will be.  

My view on the rest of the markets is about the same. The financials are the best buy as a contrarian because no one is buying them. Health, med and bio have been in the doldrums for a long time so I feel pretty safe there. Finally, there is a ton of cash on the sidelines and also a pile of short positions. If we get some sign that the banking situation has bottomed - the markets will make some huge moves upward based on a lot of pent up cash rushing in at the same time. 

So the word of the day is "patience". At least lets get through the weekend and lets see what the big money does when it gets back from vacation.