Not long ago investors had few qualms about paying 30 times earnings for almost any company; the dot-com frenzy was in full swing, and prevailing sentiment suggested that the new technology boom would allow companies to enjoy endless years of strong earnings growth.

Time has passed, but once again we’re finding that investors don’t care about fundamentals.  This time around, though, no one is willing to pay anything for strong companies at discounted prices because all are certain that this recession will prove to be like no other.

It’s well known that we all have a natural tendency to emphasize and exaggerate the primacy of our current circumstances; the present almost always seems more powerful and more significant than anything that occurred in the past.

Yet investors who lived through the 1974 or 1982 recessions will tell you things were as scary then as they are now, even without the added wrinkle of complex structured finance products.

And we also had similar problems in 1991. The S&L crisis loomed large over the financial services landscape, pumped up by the commercial real estate disaster and the weakness in home prices. Add in the huge banking losses from Latin America loans, mass layoffs on Wall Street, unemployment in the manufacturing sector as well as an overleveraged consumer and government and suddenly it’s back to the future.

Bulletproof Yourself From the Financial Crisis

This sector is rock solid and producing winners every month. Take a look at what’s happening so far in 2008:

There are 22 stocks in my Income Portfolio. 13 are producing double-digit gains and four are red hot and producing triple digits! And for the record –– only one is negative.

Go here and see why this sector has produced steady safe average returns of 14% over 19 years!

Looking ahead, I maintain the view that the global economy won’t lapse into depression. But as I’ve noted here before, the consequences of the current turmoil--particularly the loss of confidence in the system’s purported invincibility and superiority--will be long-lasting.

Although the US economy will remain the biggest in the world for a long time, its credibility will suffer immensely. Along with its debtor status, that will pose a challenge going forward as the US addresses other nations on economic matters. History has shown that a debtor has no luck when lecturing its creditor.

That said, economic activity around the world continues to be ugly in the final quarter of 2008. That portends a substantial economic slowdown in 2009.

But economic numbers, like the markets, are stretched to the downside, and it shouldn’t be too shocking to receive a positive surprise in economic activity early in 2009. This may not be the economic bottom, but it should put a floor under the extremely distressed global economy.

China, in particular, will continue to worry investors. New fiscal stimulus efforts will take time to materialize, and the country’s economy is struggling to adjust with the upcoming slowdown in global demand.

But the first quarter should be the worst for China, as a combination of domestic stimulus and the gradual pickup of the global economy after mid-year should start showing up in the numbers.

Looking at the markets, with the competition for the most negative sensationalist headline still on investors will stay away from growth for some time, allowing prudent bargain hunters to position themselves for the next cycle.

But the markets are supposed to be predictive, looking out six months or more. They’re supposed to turn around before economies do. It remains to be seen if market participants think that most of the bad news is factored into stock prices, thus allowing for a strong finish for the year.

However, even if the rally gets going in a big way, a potential retest next year is more than likely. I recommend monitoring the CRB Commodity Index for signs of a turnaround. Commodities have been destroyed during the selloff and should turn around first once demand starts picking up again.

Much of the demand destruction can be attributed to the fact that inventories had risen dramatically; consumers were trying to buy in advance because prices were rising very fast. Consequently, when prices started falling dramatically and global economic weakness started settling in, a slow-paced de-stocking period commenced.

Finally, a Bailout Plan for Investors

Top Wall Street executives left holding millions, but many small investors got left holding the bag.

Now, however, there is a project underway that will bail out investors.  It's the biggest rebuilding effort ever undertaken, and it will reward early responders with millions of dollars for the rest of their lives.

Go here now for all the details.

Going forward, investors should ensure that their portfolios are well-hedged, with a core group of financially strong, non-cyclical holdings.

The Silk Road Investor Portfolio has a clear preference for financials and telecommunication companies. Financials should be the sole benefactors of falling interest rates while offering great exposure to Asia’s long-term domestic demand investment theme. Telecom offers exposure to strong cash flows, sustainable dividends and growth potential.