The “Elastic Rubber Band” theory is a popular investment term to describe wide price swings in asset markets. Market moves are usually exaggerated on both sides of the trade and this year’s volatility in oil prices is a testament to that swing.

In a bull market, trends tend to rise far above anyone’s boldest predictions while the same is true when a major reversal lends to big price declines. Could anyone have possibly predicted crude oil would be trading at $35 six or even twelve months ago?

Where should an investor park cash?

The Federal Reserve’s interest rate cut on Tuesday to 0.25% to 0% poses some serious challenges to cash management for investors. The yield on 30-day and 90-day T-bills is now at just 0.01% this morning and actually turned negative briefly last week as nervous investors continue to lunge after super-safe bills.

As news of the world’s greatest investment fraud continues to unravel this week, one of several important warning flags is worth heeding for new and existing investors in mutual funds, hedge funds and other investment products.

Bernie Madoff was arrested by the FBI last Thursday after admitting to his sons that his hedge fund business was a “total lie.” One of his boys, an investor in the Ponzi scheme, immediately went to the FBI in New York following his father’s shocking admission and tipped off the authorities. Madoff subsequently posted $10 million dollar bail.

After landing at Vienna International Airport last Friday, my colleague and good friend at an Austrian private bank informed me of the Bernie Madoff hedge fund scandal. I was truly shocked and, thereafter, disgusted.

Approximately $50 billion dollars has been lost in the biggest hedge fund scam in history. Though it’s still too early to ascertain exactly how much, if any, investor capital will be recovered, the odds are pretty high most Madoff investors won’t see a nickel.

The time to start building fresh positions in oil, gold, silver and TIPs has arrived. Even distressed real estate should be accumulated if credit can be secured.

Over the next 6-12 months the United States, Europeans, Japanese and Chinese will eventually arrest deflation. And, long before that materializes, hard assets will begin a major reversal following months of crippling losses.

The weather in London today is cold and rainy but some of the best money-managers in the City (London’s Wall Street equivalent) have some compelling ideas and comments about the ongoing global financial crisis and prospects for 2009.

On Wednesday, I visited several large, established British hedge funds and managed futures advisors. Both breeds of alternative investments are different.

I always love visiting London. It’s an amazing city with a great vibe and fantastic museums. Like New York, it’s pretty hard to be bored in London.

Yet things are grim at the moment, very grim…

Britain is in the midst of its worst economic contraction since 1992. Sixteen years ago, the United Kingdom exited the ERM, or the European Exchange Rate Mechanism, and devalued the pound by a fifth almost overnight; George Soros infamously made over a billion dollars betting on that outcome and sterling was humiliated along with the Italian lira, which also collapsed.

"This aging stock bull market is looking increasingly like a scarred prizefighter after winning too many championships. Indeed, the market is looking increasingly fragile, bruised and battered since the bear market low in October 2002."

In January 2008 I made the above observation about stocks as the market was coming undone. Of course, almost a year later the stock market has collapsed with stocks likely to post their worst calendar year of performance since 1931. Over $10 trillion dollars of global stock market value has been wiped-out in 2008.