The Bear Market

Well, since I last posted about the markets about a week ago the Dow is down 226 points. There has been two rally attempts since the downtrend started on May 10 - May 24 and June 8. Both have been killed by bears. Actually they have been killed back the lack of bulls.

The few bulls that are left are arguing funnymentals, FMV (fair market value), growing GDP and fire sale. It's not the first time. In the end of a secular bull market the revenue and earnings growth still *seem* to grow. The analysts are still bullish, promoting the companies that their investment firms are doing business with. The issue *upgrades* when it's time for bigger clients to dump their stocks.

But, the macros always beats the micros. The markets are slowly realizing that the US economy needs higher interest rates to fight inflation and to attract foreign capital, i.e. keep the dollar alive. If the dollar starts to plummet - yes, the US export will take off - the living standard will plummet. Argentina, eventhough an extreme example, is a great case. The difference is that the dollar is the current gold standard.

The housing market is financed through debt and the consumer savings are close to zero. Even the consumer spending is financed through debt, via credit cards with low *initial* APRs and home equity lines.

Hmm, wonder what happens with those ARM's when the Fed rate gets to 6%? The consensus is that 7% is what will take the real estate market to burst.

I know, I know. This might seem like an extreme case right now but just wait. We are either heading for a helluva correction or straight into a bear market. Tomorrows CPI numbers will give us a hint as well as the Fed meeting on June 28-29.

My long-term investment bet is as follows:
- Long Gold, Commodities and Emerging Markets (wait for confirmed buy signals after correction)
- Long Energy (after correction)
- Interest generating vechicles (cash)
- Short dollar (can be hedged via emerging market EFTs)

If the CPI doesn't please the markets tomorrow, I think it's going to get pretty obvious that we are going to 5.5% in the short term. Tomorrow's markets will be anything but calm!