It seems that the Bull has more to run, BUT…

When I read these stories, I just think of them as warnings…

If we are in a sustainable bull market, tell that to the Japanese. Don’t they have experience in these types of recessions?

This doesn’t jive with me either. You could extend this to all commodities in general. I believe the world economy still depends on the US consumer. Careful with Oil though. The bull-happy media is not reporting these lurking dangers. Could this blow up in late 2009/early 2010?

Everyone is a dollar bear. The contrarian in me tingles. I believe Roubini is wrong in that Gold at $2000 is ludicrous. But at the same time, I do not believe this to be the time for the parabolic spike (there is no wall of worry; the trade is on one side).

The bull market must continue because off loose monetary conditions right? Well most people seem to think so. Once again food for contrarians. I also noticed how we are starting to develop a negative divergence between the S&P, oil, and the dollar. The dollar is testing it’s lows, yet the equity/oil market is not testing it’s resistance just let. At what point does a falling dollar begin to spook equities? DXY @ 71? That’s the last stand before new all-time lows.

With unemployment over 10% and consumer credit contracting, tell me, is the consumer giddy with excitement towards spending in the holidays, the most important season for the retailers? Disappointing reports will most likely short-circuit whatever “inventory restocking” was starting to occur. I think CEOs are waiting for the holidays to see if they plan on expanding in 2010. The bulls say, job losses are receding, indeed they are, but what very few people mention is the other side of the equation, job creation…there doesn’t seem to be much positive news from this side of the equation. How do I know? Congress keeps extending unemployment benefits! At what point to people start to take advantage of this and just not look for jobs period? (The main lesson why communism doesn’t work).

Although the equity market continues higher, the most important factor that equities price in are a series of future cash flows. Other factors, which currently are in the spotlight are sentiment, liquidity, and technicals. While these less important factors can hog the spotlight for months and even years (as we saw in the fake bull of 2003-2007) what matters most is true organic growth. I do not believe we are in a new sustainable bull market. Recently I heard a very good argument on how many of the S&P 500 companies have non-US sales fueling their growth. While that can indeed further sustain this current cyclical bull, global as well as US Structural imbalances have not been resolved. Eventually this bull will end and we will be once again gripped by the current SECULAR bear market (still calling for new lows; I know I know not many of me around anymore). Because of this, I am now shifting my medium-term outlook to a more bearish tilt. I would begin to Dollar cost out of Commodity, Emerging Markets, and Real Estate and into the US dollar and Treasuries for a more risk averse profile.

Go long the market, but at your own risk. Make sure you set tight stops. When the downdraft occurs, it will be violent and there will be nowhere to hide except cash and treasuries. Like the picture above, this bull has truly been build on paper, nothing more.

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