Days like this I drink Champagne with my wife and celebrate.

I have been very aggressively short this market now for some time.

My portfolio:

58% SDS, ProShares Ultrashort (2X) on S&P 500
11% DUG 1X INVERSE of Dow Jones U.S. Oil & Gas index.
13% GLD (gold ETF)
11% PUTS on NASDAQ and S&P 500
7% CASH

Yes, I’m getting my ass kicked on the inverse oil position (down 16%) but I’m firing on all other cylinders.

You can imagine those PUTS are really paying off on days like this, to the tune of UP thousands of dollars per hour.

With gold at $865 I’m sitting pretty there also.

Also, I’m obvously pleased that nearly 60% of my portfolio is double-leveraged on the down side of the S&P 500, while that index has fallen 10% since Oct ’07

I do not suggest this portfolio allocation for anyone. This is an incredibly risky allocation, but it is paying off.

If you think markets will continue to head south, I do suggest ProShares “SDS” which has worked very well for shorting the S&P 500 with some added leverage.

The obvious “long shot” gamble in my portfolio, is the short oil position. Laugh, but I still have a good feeling about that gamble paying off short-term. The theory is that with recession now knocking at the door, world oil demand will drop significantly into 2008. Much of oil’s price increase has been speculative and inflation-driven. I see oil falling below $60 within twelve months. However, long-term I’m obviously very bullish on oil prices, expecting $200/bbl oil within 5 years.