I was burned out from exhaustion, buried in the hail,
poisoned in the bushes, blown out on the trail;
hunted like a crocodile, ravaged in the corn,
“Come in,” she said, “I’ll give ya shelter from the storm.”

- Bob Dylan

Weary and exhausted, the bulls have given up vital ground. The S&P 500 index saw its lowest close in 18 months on Thursday.

During the January sell-off, the S&P went lower on an intraday basis but managed to bounce back. Yesterday, there was no bouncing back.

Are we still in a “buffalo” market for U.S. equities, where neither side gets much traction? Time will tell. In the short run, though, there is real risk of a trap door opening up — just as it did beneath the dollar after Bernanke went to Congress.

And Citigroup Shall Lead Them

If, as they say, a picture is worth a thousand words, then how much is a chart worth? At any rate, the following chart says a lot.

With a current market cap of $105 billion, Citigroup is the third-largest financial institution in the United States. (Bank of America is the biggest.) Citi used to be second largest, but has slipped behind JP Morgan. At the rate Citi is bleeding, it will soon be fourth — behind Wells Fargo, too.Citigroup is a bit of a poster child for the ongoing “credit crunch.” It was the quintessential deep-pocketed player with more money than sense; it was the headline recipient of bailout funds from the cash-rich Middle East, and it has destroyed more shareholder wealth than any of its peers.

Notice that Citigroup has taken out its 2002 lows. It is the only major financial house to have sunk so low; the others have all left those dark days behind them… or so one might have thought.

If Citigroup is leading the pack and 2002 is the benchmark, then Bank of America, Wells Fargo, JP Morgan and the like could all have double-digit percentage declines ahead. Miles to go before the bears sleep.

Sovereign Resignation

Needless to say, the mighty sovereign wealth funds — those pools of foreign cash that run from hundreds of billions to trillions — have not been able to stop the bloodletting.

Back in November, the Abu Dhabi Investment Authority’s multibillion-dollar cash injection into Citigroup was something of a coming out party. That investment is now underwater by close to 30%.

But even more so than Abu Dhabi, pity the poor timing of China’s flagship sovereign fund. Their multibillion-dollar investment in the Blackstone Group (BX:NYSE) is down nearly 60%.

Will there be another round of sovereign bailouts? With losses like those from round one, don’t count on it. Middle Eastern money managers are closing their checkbooks — and demanding that Uncle Sam open his. They even fear Citigroup might be a lost cause. Dow Jones noted the opinion of one Dubai executive:

Sameer Al Ansari, Chief Executive of Dubai International Capital told delegates at a private equity conference that it will take more than the combined efforts of the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi investor Prince Alwaleed bin Talal to save the bank.

“It’s going to take more than that to rescue Citi,” Ansari said.

Some of this is gamesmanship. Gulf investors have the cash and the clout to pump more billions into Citigroup — at the right price. But they have no interest in looking like suckers, or taking on a load the American government could help shoulder.

Two Canoes

The Catch-22 is that the more help the Fed gives to the likes of Citigroup, the more damage they do to the dollar… and the American consumer.

The printing press is a wonderful device (in the eyes of some), but it isn’t magic. More dollars printed reduces the value of dollars in circulation, which sends the dollar down. That causes the price of hard assets — gold, oil, commodities and food — to go up, precisely at a time when the average Joe consumer can’t afford more price hikes.

Imagine two canoes filling up with water, one of them labeled “Wall Street” and the other labeled “Main Street.” In order to bail out the Wall Street canoe (by printing dollars), the Fed has to dump water into the Main Street canoe (by fueling sharp cost of living increases through inflation).

It’s a twisted kind of help.

Down the Rabbit Hole

The real problem with all this credit crunch mess is one of uncertainty. No one knows just how deep the rabbit hole goes. Multiple attempts to bottom pick have resulted in failure. And for a number of high-profile hedge funds, that failure has been final.

One recent example is Peloton Partners, a snazzy London-based fund that made billions shorting subprime. Peloton turned bullish too soon and went bankrupt. Another hedgie made enough dough on his bearish bets to buy a giant yacht. Then he, too, turned bullish too early — and lost the yacht.

Active investors are generally a confident lot. (Those without confidence tend not to be active, self-selecting into index funds.) When that optimism is brutally tested over and over and again, it eventually cracks. And when the horde of financial commentators who constantly parrot how “everything is fine” are finally forced to shut up, their silence leaves a vacuum. Fear tends to fill that vacuum.

If investors throw up their hands, fear could mutate into panic. Broad markets could join the U.S. dollar in free fall. It’s an ugly time.

Not Everything Goes Down

But the news isn’t all bad. (Is it ever?) While investors gawk at America’s credit implosion like rubber neckers driving past a car wreck, there are good things happening in other parts of the world.

For example, take a look at the iShares Brazil ETF (EWZ:AMEX) or the iShares Taiwan ETF (EWT:AMEX). The Taiwan iShares are at three-month highs as of this writing. About a week ago, the Brazilian iShares hit new record highs.

Didn’t these countries get the memo? Don’t they know America’s financial system is imploding?

Emerging markets got whacked in the January panic just like everything else. But many have shown remarkable resilience. Why is this the case?

It’s because there are good things happening out there in the real world. And by “real world,” I mean the world of fairly valued assets and true economic production, as opposed to the overleveraged, overhyped explosion of “engineered finance” that made the U.S. financial situation what it is today.

Brazil, in particular, is a country that has what the world needs. From agriculturals to base metals to oil and gas, there are exciting things happening there. As there are in many places.

All over the developing world, there are real economies hungry for real growth, as opposed to the quant-engineered, subprime-juiced kind that burns up like paper in fire.

Many Ways to Play

The even better news is, there are many ways to profit from international market trends — in the thriving world beyond the smoking wreck of the U.S. financial system.

How do you do it, you ask? Let me count the ways.

You can get exposure to foreign currencies with limited downside risk. (Some vehicles even offer currency exposure with essentially zero downside risk.)

You can take advantage of prepackaged investment vehicles, like country-based emerging market ETFs.

Or you can find backdoor plays into booming local economies, profiting alongside companies of all shapes and sizes, from big multinationals to innovative small caps. There are more ways to get in the game than one can imagine. But you first have to put aside the urge to panic, and see that the opportunity is there.

Finding Shelter in the Trends

There are a number of ways to find “shelter from the storm” as Bob Dylan sang about… but the rub is getting good investment performance, too. It’s not enough just to shelter the nest egg. The nest egg needs to grow.

That’s why I like to set my feet on the bedrock of unstoppable trends. To get stability, you want to invest in opportunities that are financially solid and strong. To get growth, you want your piece of the pie to be getting bigger, not smaller. And to get stability and growth at the same time, you have to gravitate to where the big movements are happening — as opposed to the tempests in a teacup or the smoke-and-mirrors hype.

In the long run, emerging market growth is an unstoppable trend. The rise of commodity, agricultural and energy demand at the margins is another. The long twilight of the U.S. dollar as world reserve currency is another.

It never really made sense for 20% of the planet (the Western world) to consume 80% of the planet’s resources while everyone else sat out. Moving towards a “full participation” picture, in which billions of new producers and consumers come on line, is simply the most dominant trend in existence today. It will dominate for decades and have major implications for decades. It is ultimately the cause of all trends listed in the previous paragraph. Not billions but trillions will be won and lost.

Understanding this reality can take you a long way in finding shelter for your investment dollars. And not just shelter, but growth and profit, too. There are always opportunities, no matter how ugly the headlines get.