HardAssetsInvestor.com (HAI): There's no other way to put this, Roger: This market is crazy. How should investors respond to current developments?

Roger Nusbaum (Nusbaum): Regarding the stock market, I've been in the "bear market camp" for a long, long time. I'm not talking about an apocalyptic bear market, but a real bear market. And that's what we've got.

At this point, the stock market is down a lot: It's off 27% from its peak, versus the normal peak-to-trough fall of 30% in the average bear market. So despite all the fear that exists, all the crazy things that stand before us, we know that the market is already down a lot. And that matters.

HAI: So this is an opportunity?

Nusbaum: To be clear: I'm not calling for investors to "Buy Stocks Now!" like you see on the TV ads from time to time. But on Wednesday, I did take a little bit off of my SDS [ProShares UltraShort S&P 500 ETF] position. So today, I am a little bit less hedged than I have been. I'm still 25% in cash, with some in SDS. But there's a little less risk of the market going down a lot now that it's already gone down a lot.

That said, all the things that people are worried about ... well, I'm right there with them. But even if the economy goes down a lot from here, the market discounts this ahead of time. This market started rolling over even before we knew how big the risks in the markets were. The current bear market actually started rolling over quietly last October, if you take a look at the charts; Q4 of 2007 was down a bit.

There is less fear about going down a lot from here, but there is not much expectation that we will start to go up. I optimistically think we might start to turn up in the second quarter of 2009.

HAI: We've seen a huge pullback in the commodities market - Materials and Commodities are the worst-performing sectors recently. What do you think of commodities in general, and also specifically about things like oil and gold?

Nusbaum: I view oil and gold as two completely different animals.

Looking at gold, I am of the opinion - and this is why I hold gold and have held some gold for clients as long as I've been managing money - that if something really bad happens, I expect gold will go up. That was the case in 2001, obviously, but it was also the case recently with the 777-point one-day drop in the Dow.

Gold is getting crushed today [Wednesday, October 1, 2008], but it does seem that it's generally been working higher through most of this crisis. From the standpoint of looking to own something that goes up if a nasty outlier occurs, gold is it.

I wouldn't hesitate to buy gold right here, right now, if I were setting up a new account.

HAI: Are hedge funds and forced selling contributing to the downturn in commodities, and the volatility in gold?

Nusbaum: They may or they may not be. It's hard to say for sure.

The totality of what's going on in the economy and the markets is causing all types of normal relationships to break down. As I try to navigate this, a lot of the normal relationships that exist between asset classes are not working right now. That's happened before in times of panic, and it's happening again. It makes for a tougher go as an investor. Maybe you can explain it and maybe you can't, but you're better off realizing that this just happens, regardless of the reason.

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