Many readers are likely wondering why if I am so bearish on the economy don't I just short the market? The question I keep coming back to is who is left to sell? The 15% drop that culminated a few weeks back was largely the result of hedge fund derisking. By most reports hedge funds now have very low levels of exposure to the stock market. Individuals never fully embraced the rally so I doubt that they have much to sell.
In the previous cycle everybody came in over leveraged and there was a lot of forced selling. That is very unlikely to happen this time around. I was planning on being short for the Summer because I though that the rally would suck the hedge funds back in, but that does not seem to be happening. While I am certain the market can go down further, I don't have the conviction to go short. That said, with the economy imploding I have no intention of going long other than for a trade. The sidelines seem fine.