Here is what Cash McCall in the US said a couple of hours ago. Who is Cash McCall? I don't know but he's not very optimistic....
I am an inveterate bull generally but in the last year, following the Tepper strategy, 70% of hedge funds lost money. The reason is that there is no good news. Earnings have been boosted by buybacks, cash hoards are used for nothing. US wages are still declining. 30% of all mortgages are underwater. Unemployment number is a farce based on filers only. What you need to do is take a drive around your towns and look at all the businesses out of business and commercial property up for sale or lease. Small business is flat. Banks can't make money. The foreclosure mess is a logjam, and the debt grows by the minute. Obama is a shambles, the Republicans are in shambles and the debt grows by the minute.
We have never had a recession that has been going on this long. We have been in a contraction for the last ten years. We have gone through all the candy float and now there is no more. Bernanke has no more tools except gab and nobody is believing it.
There is nothing here to propel stocks or risk higher. Apple is a great example. They have 97 billion stockpiled and they are totally risk adverse. They are literally paying for their bond holding privilege. How long can any of this go on before S&P and Fitch downgrade the US on the basis of unsustainable debt. Its coming.
The Dow at 8000 may be a bit extreme but a fast 25% drop is very possible and the potential for a second recession has jumped to about 60%. Extreme caution and a solid bear strategy is in order. You can never hurt yourself to keep a little extra cash on hand. I hedge and I tend to flatten my risk. I will still make money if the markets rise but the downside potential is greater and traditionally the plunges extreme. Hedge funds are on the sidelines due to exhaustion. These are treacherous markets.
The danger is understated and I will simply list my reasons.
1) low low low volume precedes low low markets 2) Greece asked for 70% haircut on bonds. They will now default. 3) Obama state of union was hard left turn, a disaster 4) Republican party leadership collapsing; Romney will not win nomination. 5) East coast refineries shutting down, Keystone blocked, deep gulf blocked gas to $5 gal will demolsih the consumer 6) Bernanke's endless zero interest policy rolled out to 2014. This is a disaster for fixed income in elderly retired and puts more pressure on soc sec and gov debt. 7) Gov debt will be 18 trillion or more by the election. 8) Hedge funds on the sidelines. The tepper trade is no more. 9) Vix with low volume portends a crash. 10) earnings while reasonably good can't be sustained. China has renegotiated all their materials contracts and shipping contracts. They are pulling in the horns and tightening up. Without Asia, there is no growth. 11) While the fed money is cheap, banks can't afford to lend. Goldman is speculating with its fed money by running up the oil futures. Small business and mortgages are in a credit crisis. There simply isn't any ability to increase the float and not swamp the economy more. 12) Corps like Apple have completely mismanaged their cash. They have 97 billion dollars losing money in the bond markets. FDIC rules only ensure bank accounts for 250K so now we have miles and miles of these corps packed into the bond markets collecting interest at below the rate of inflation. The gov debt grows and the capital never gets used for economic activity.
In short, there is no good news here and deep reasons to have a lot of fear of a significant market collapse. The Bear is still with us and has grown very large claws over the last month. There isn't even one good contrarian argument available. Hedges are on the sidelines this time so they aren't providing a downside cushion. Buffett is going to be in trouble with is derivatives. This thing could snap hard to the basement.
