The good news, the bad news and the really bad news.

The good news:

We think the energy rally is advanced. We have trimmed our positions in a couple of holdings, but we still view energy as a strategic area long term. What is going on in the energy sector is a multiyear phenomenon, not a two- or three-year occurrence. It's going to be a five- to 10-year phenomenon.

I'd say that energy is ahead of its fundamentals on a short-term basis, but on a longer-term basis there is quite a ways to go.

[Quote from thestreet.com's interview with Robert Rodriguez, manager of FPA Capital Fund.]

The bad news:

Five to ten years of bad jokes on LOBG.

The really bad news (for index fund holders):

When you survey the investing landscape, what do you see as potentially being undervalued?

Right now the most aggressive thing that we've been acquiring has been Treasury bills. We select our stocks one stock at a time from the bottom up. We have only added a single new name in the last 18 months. And that occurred at the end of June. It was a 144 deal called Rosetta Resources that is in the process of getting registered. It's in the energy area. The company was set up to acquire assets out of Calpine (CPN:NYSE - news - research - Cramer's Take). It was a forced sale because Calpine needed the cash.

So you just don't see anything out there?

We just don't see anything out there. Three areas are showing up on our screens right now: financial services, which we talked about; housing, which we wouldn't touch with a 10-foot pole; and retail. A larger number of retailers are appearing.

You're starting to scare me. Is there any credence at all to the bull case?

Hey, we could be wrong. A value manager and a contrarian ask whether they are getting adequately compensated sufficiently through a low enough valuation or a high enough yield to compensate them for the uncertainty of the future. We've come to the conclusion that the compensation is not sufficiently high enough either in equities in general or bonds in particular.

So cash is king?

Yep, cash is king. You can look at it this way: the opportunity cost of holding cash is very low. The S&P is up around 2% year to date, which is almost identical to the yield on the three-month Treasury bill. So for all the risk that people have taken holding equities this year, they have not been adequately compensated.