As for the “here and now,” my firm’s hedged long positions in the major market exchange-traded funds (ETFs) are now showing decent gains, and we’re raising stop-loss points appropriately. Meanwhile, our unhedged long positions in the iShares MSCI Japan (EWJ) and the iShares MSCI China (FXI) haven’t only broken out above their respective December closing highs, but their November closing highs as well - and we’re raising stop-loss points.

As for the closed-end municipal bond funds recommended 3 weeks ago, both BlackRock MuniHoldings Insured (MUE) and Nuveen Insured Dividend Advantage (NVG) have experienced rallies that reduced their discounts to net asset value by nearly 50%.

While I continue to like the strategy of buying distressed debt, I’d now be more price-sensitive, given the fact that the Treasury Bond complex broke down last week, implying higher interest rates. Interestingly, while my firm doesn’t own it, the Market Vectors Agribusiness ETF (MOO) has closed above its November/December closing high, which should help our recommendation on 8%-yielding Archer-Daniels (ADM) convertible preferred “A” shares (ADM+A). I continue to like the agriculture theme, and, in addition to Archer-Daniels, offer Bunge’s 7%-yielding convertible preferred (BGEPF).

The call for this week: It’s been said that, “So goes the first week of the new year, so goes the year.” While there’s statistically some truth to this old saw, I prefer to combine it with the December Low Indicator, which I’ll write about next week.

My strategy remains to favor the upside into mid-January, where a pause/pullback should be in order. What happens to the stock market’s internals (advance/decline, selling pressure, etc.) in that pause/pullback should tell us a lot about the market’s future direction. My firm’s official stance for the year is that it will be a stock pickers’ year, where companies with lots of cash on their balance sheets, decent fundamentals, and dividends will outperform. A company like Strong Buy-rated Intel (INTC) is just such a company.

Nevertheless, 2009 should be a better year than 2008, for as noted in the December 30th issue of The Economist:

“If 2008 was the year of systemic risk (systemic risk is the risk of collapse of an entire system or entire market and not to any one individual entity or component of that system. It can be defined as ‘financial system instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries.’ It refers to the risks imposed by interlinkages and interdependencies in a system or market; systemic risk by definition is systemic or universal, and thus this risk cannot be diversified away but is borne by all assets in the entire universe), particularly in the financial sector.

"2009 seems likely to be a year dominated by the more usual ‘specific risk.’ (Specific risk is the risk that affects each asset uniquely. This is sometimes referred to as ‘unsystematic risk.’ Unlike systematic risk or market risk, specific risk can be diversified away.)”