"Meanwhile, the housing bubble parallels the boom-to-bust journey of the Internet stocks of the late 1990s. And the most important message for us today is that it continues to hit new lows.

"The drop-off in New Home Sales now rivals the plunge of the late 1970s when the economy entered its longest recession since the Great Depression. The biggest problem, as we see it, is that plunging interest rates in the early 1980s helped reverse that earlier housing recession. With long-term rates already under 5% today, that stimulus won't be available this time around.

"Meanwhile, in the last 10 tightening cycles, the Federal Reserve has missed their 'soft landing' target and ended in
recession 80% of the time – and we believe they just missed it again!

"We have often said that recessions are not caused by poor Federal Reserve policy, but by economic imbalances.
And seldom have we had such extremes tugging at the fabric of the U.S. economy. A recent poll shows over
70% of the public already believes the economy is, or soon will be, in a recession.

"As the Fed frantically unwinds its interest rate hikes of the past 3 years, is it any wonder they have such a poor track record in successfully piloting a 'soft landing'? Their only two successes were in 1966 and 1995, and the first still resulted in a bear market on Wall Street.

"Although the economy appears on a collision course with recession, and Wall Street is on a collision course with
infamy, we have found a silver lining to the current storm clouds.

"Not only do we feel that a 'crash scenario' is not imminent, but if a few important blocks drop into place in the coming months, we just might reach a classic low-risk buying opportunity before this Presidential election year is over.

"Another fundamental development that is difficult to ignore (and therefore should not be), is the positive fact that 2008 is a Presidential election year. Note the obvious insights from the following table:

1. Since 1940, 81% of Presidential election years have seen gains in the S&P 500 Index.
2. Also since 1940, only 1 Presidential election year (2000) has seen over a 3% loss in the S&P 500 Index.
3. Even in 3 of 4 other Presidential election years that saw the start of a bear market (1948, 1956, 1968 and 1980), the S&P 500 Index finished the year with a gain.

"So we head into this year of uncertainty with our defensive strategy and allocation still intact, but with a bias toward flexibility. We're not holding our breath in hopes of a reversal to a bullish outlook, but we are open to the possibility and watching for changing evidence.

"If we are in a bear market, then we're only in the fourth month (since the market peaked on October 9). Only 2 of the past 15 bear markets have ended in less than six months. Note that over half of the bear markets since 1940 have ended in less than a year.

"That means we should prepare for a possible buying opportunity by the 2nd or 3rd quarter of this year – if our key indicators start to turn bullish. Currently, with more housing headache ahead, that seems like a pretty remote 'if.' But remember, this is a Presidential election year. So while our key strategy word in 2007 was 'Defense!', our our new strategy watchword for 2008 might be 'Flexibility'."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.