As I write, every market index is down. Again. Jitters about China’s contracting economy and near collapse of its currency have spread all over the world. A catastrophe was narrowly averted by their central bank’s intervention and emergency market stops. The commodity collapse continues to wreak havoc on economies throughout the emerging world and has badly hurt North America, and, especially, Canada.

The good news is that we were well positioned for this, and have weathered the storm pretty nicely. Our short position (SH), together with our bet on gold (FNV) and treasuries (TLH) have paid off for us handsomely. Unfortunately, we lost, and lost badly, on our Canadian plays BNS and ENB. Even stodgy Johnson and Johnson, our water utility (YORW), and LTC are down. The upshot is that we are up very slightly on the day, and positive for the year so far, which, if you’ve been paying attention, is quite a bit better than if you’d just “bought the market”-any market.

So, where do we go from here? Do we stick to our guns? I am tempted to, but we’d talked about some stocks that we were going to keep an eye on for action later. Let’s review those.

The shorts we had in mind were Amazon and Tesla. Well, they were great ideas, but those ships already sailed. Both are down so much at this point that it’s no longer a safe bet against them. Sure, they might have further to fall, but both stocks will test support levels soon enough. No point in getting caught if they bounce off their lows. Let’s stay away from them and see if they recover.

The fact is, when the bear is growling, it’s best to stay in the cabin-or bet on the bear. I’m tempted right now to increase our position in SH and FNV at the expense of some of our other picks. The logic here is that the trend is your friend, and those two are heading up while our “traditional” stocks haven’t found a bottom. In fact, when I look at the long term charts for some, like BNS and ENB, they’re downright ugly. It’s tempting to sell them. But we won’t.

BNS is testing support right now. If it dives through, we will have to rethink, but I don’t want to miss what I think is a sharp rally brewing for the banker because we panicked and got out early. ENB actually looks like it may already have found a bottom. We will hold them for now.

JNJ looks like it has further to fall before it finds support. LTC and York Water are similarly positioned. Again, I’m tempted to sell, and I already told you that all of these stocks bore me, even though they pay fat dividends. Again, we will hold on for now.

Many of you may be surprised that I am talking about changing positions so soon, during the first week, when I promised I would try to hold all year. Allow me to explain.

I normally trade 5-6 times a day, so it takes a huge amount of restraint for me to keep my itchy trigger finger off of the buy/sell button. So it’s been killing me just to let this ride even though it’s working. Secondly, though, a good trader is constantly evaluating his positions because the market doesn’t care what his strategy is. The market’s only constant is that it will change, and probably not the way you thought it would. So you have to be on alert for that and sometimes get out of your bad stocks and buy new ones as the market dictates.

That takes psychological discipline, because it’s hard to admit you were wrong. You have to get over that. Sell your dogs mercilessly. We haven’t yet been badly bitten by our dogs so I’m hanging on for now. But if they drop through support, I am not so in love with Bank of Npva Scotia that I won’t drop it like a hot rock. “Love me quick time” is my motto…:)

By the same token, sometimes you must buy stocks you don’t really like. I hate the idea of the long term care industry because it reminds me I’m getting old, and no one’s going to knock a home run with this boring play. I got over that, though, because I thought it would hold up well in what I anticipated to be a tough year for stocks. So I did buy LTC even though I hate the industry emotionally.

But I do think the market is growling, and it’s stupid to ignore the bear. So I’m going to wait for an opportunity to sell some of our YORW and JNJ, which I think have furthest to fall. I will sell them if we get a significant uptick. Yes, we’re taking the chance that the market surges higher after we sell, but like I said, I think the bears are in charge, and eventually the bear will reassert itself.

When we sell those dogs, we will add to our winners FNV and SH. But for now, sit tight! We’re doing pretty well for amateurs…:)

I hesitate to draw broad conclusions based on just a few trading days, but this big trouble in China has been brewing for years.  No one knows how far the market could fall if and when China finally goes, but, if we take 1929 as a barometer, an immediate 33% correction wouldn’t be surprising. We are seeing a historic shift of manufacturing and capital away from the old economy of Europe and America to the East, just as we ourselves once took the crown from England in the early part of the 20th century.  This is enormously disruptive to the global economy.  Just as the dollar became the world’s reserve currency in the wake of our victory in WWII, so too will the Chinese yuan be recognized as a legitimate currency reserve in the new SDR (special drawing rights), thus ending dollar hegemony and ushering in a new world order.  But before that happens, the malinvestment in the Chinese and world economy will have to be addressed.  The market will see to that.

There is a Chines saying, and it is considered a warning, a blessing, or a curse, depending on who you talk to:

“May you live in interesting times.”

Indeed we do.  I don’t think anyone here realizes how fast the wheels can come off the economy based on any number of dangers that are already lurking out there beyond the edge of the economist’s tools and predictive models.  Eventually, our bubble will meet the pin it seeks, and it will be catastrophic not just for investors but for every living American.  This can happen literally overnight.

The Boy Scouts have a saying, also:

“Be prepared.”

That’s good advice.