Lloyd's Wall of Worry

Long a part of Wall Street lore, the Wall of Worry is a quick, handy way to gauge the emotions of investors. As interpreted by money manager Lloyd Khaner, a low wall, with seven or fewer blocks, indicates a complacent, even overconfident market. Time to take profits. A high wall, with 15 or more blocks, suggests a squeamish market: Look to buy at bargain prices. In the middle range, reading the wall gets tricky; knowing not only where the wall stands but whether it's headed up or down is the key.

THIS MONTH'S WALL:

Wall Street was planning a caviar-and-champagne New Year's Eve following a five-month bull run that pulled the market out of a midyear nosedive. As always, the key to working with the Wall of Worry is to take advantage of extreme market swings, opportunistically taking profits or scooping up bargains. The Wall starts the new year at eight blocks -- just a step away from the complacent (or greed) zone and a long way from its most anxious state. Selective buying is paramount; disciplined selling is critical. If it looks like an overvalued stock and acts like an overvalued stock, take some profits.

The worries

1. U.S. economy: Europe and Asia are outpacing America in terms of growth. That may be a bit ego-bruising for U.S. investors, who reluctantly settle for GDP growth of 2 percent or better.

2. Interest rates: So begins the vigil. What goes up must come down -- we hope.

3. Inflation: Seemingly under control but still harder to deal with than that first kid in Little League to master the curveball.

4. Oil prices: Thwarted by a mild winter and rising worldwide fuel inventories, OPEC signs up Angola to aid the group's not-so-invisible hand as it pushes for production cuts. They're doing what they can to maintain $60-a-barrel oil.

5. Consumer spending: This last leg of our economy isn't going down without a fight. Just as our beloved home equity ATMs run dry, we're whipping out our credit cards faster than a twister can take off your socks. But then what?

6. Housing prices: Can those Hummer-size Wall Street bonuses prop up a swelling glut of subprime mortgage defaults and delinquencies? Probably, but the finance crowd already owns a few houses each. With all those aging rock groups to rent and Gulfstream Vs to buy, don't look to the bankers for a bailout.

7. Iran: Busily sponsoring history-rewriting, Holocaust-denying conventions as a way to build its Rolodex. In a word: troubling.

8. Stock option pricing: Just as we were tuning out all those repetitive reports of backdating, the IRS rides in and kicks it Capone-style. This story looks ready to hit a climax.

Looking ahead

Iraq: While the White House rearranges the deck chairs on the Bushtanic, the rest of us are wondering if we're about to see the start of a peace dividend or another $100 billion annual tab.

Liquidity: Once hedge funds, private equity and the banks finish buying up all the available assets in the free world, who will they sell them to?

Market correlation: It's always unsettling when most of the world's equity and bond markets are going up at the same time.

Middle East: A menacing tinderbox awaiting a match. Though the financial repercussions, higher oil prices and inflation would hurt, the human toll would be tragic.