What is your view of the markets at the moment?

I've been super cautious on the equity markets, and also think the commodity markets may have some problems. Oil's been very volatile. Some of the commodity, fertilizer, and materials stocks look to have topped out. They have been rallying a little bit, but I think they are close to coming down in a big way. Clearly with the financials something new seems to be coming up with them everyday. People sell first, ask questions later. It becomes a tough arena for investors to navigate.

How do you navigate?

Mostly in cash. I've been investing in some selective areas, but nothing very aggressive. I've been waiting for a good opportunity to buy the market, which I really don't see. I think we're close to a tradable rally, but is it worth playing these days? I'm somewhat cautious as far as that goes.

Why?

We're in a situation where the economy is de-leveraging, and with de-leveraging comes slower growth and pockets of turbulence. I think that come late fall there's a lot more unwinding to do, especially outside the U.S. in this mortgage area and in the high-yield area, and I think we have some real problems with the market staying up once it rallies.

What would be the catalyst for a rally?

If this market is going to rally, the financials have to put in some type of at least short-term bottom to get a rally out. We could get it tomorrow [Thursday] with Merrill Lynch (NYSE: MER, Stock Forum). If Merrill's news isn't as bad as people think, who knows – we could get it tomorrow. So, I think the catalyst comes from some type of bottom in the financials, or a big drop off in commodities.

One thing I have noticed is that with gold and commodities going up the last week and a half, the dollar has actually stayed above its lows and has been inching up a little bit. That tells me this commodity rally that we've had may be on its last legs. Then I think we could get a fairly good rally in the market.

What would you nibble at if you saw the market showing more promise?

Biotech is an interesting area. Some selective technology. Maybe some financial entities.

Are you short anything at the moment?

Only on some oil, and that's really about it. It could be a short to intermediate – a couple of months – type of trade into August-September.

What opportunities, if any, do you see in other sectors, asset classes, or internationally?

I think that in a bear market, all markets and sectors one by one get taken out, and we've seen it to date and it will still continue. So I'm cautious about doing anything outside the U.S. also.

With sentiment so low, is that not a reason to expect some type of bottom?

I leave sentiment alone in these kinds of markets because people get very clued into sentiment. Sentiment is bearish right now, yes, but we're in a bear market, and sentiment can be expected to get very bearish. In a bull market, when sentiment gets bearish, it's typically a buying signal. Here it may not be the case.

Any parting shots?

Obviously, cash is king right now, and we need more visibility in these markets before really going in and becoming aggressive. Tomorrow [Thursday] with Merrill Lynch coming out with their earnings, I think that if they're not as bad as people think and they don’t have to really sell any assets, that would be the best case. Could spark a huge rally. Otherwise, probably just more of the same until we just wash out.