Torn

I believe it is now inevitable that we will see a double dip recession. The economy is already weakening and there are many headwinds about to hit the economy:
  • Stimulus is wearing off.
  • Inventory has already largely been rebuilt. A large part of the growth in the past year has been the rebuilding of inventories. I believe that process is largely done.
  • Comps are getting tougher.
  • Municipalities are cutting back and firing employees.
  • The housing tax credit expires this month.
  • A large number of mortgages are resetting and according to Bank of America strategic defaults are growing as Americans realize they can live rent free for years before they are foreclosed on.
At the same time  it seems that the crowd is now unanimously bearish after the market has already fallen by 15%.
  • Most sentiment surveys are showing the bears far outnumbering the bulls.
  • I stumbled upon a recap of Fast Money from Friday. Apparently all four participants were bearish and very confident in their views.
  • Nobody seems to be trying to call a bottom anymore.
  • While I was disappointed in the level of put buying this Friday put buying has been running high for a number of weeks.
 Once the bearish case is already so well known it is unusual for the market to continue lower. Barring a contagion it seems the market is ripe for a bounce. I was worried about a contagion coming out of Europe but this morning it seems that Europe is actually stabilizing our markets.

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