Monday, July 26, 2010

Mr Market seems to be handing out free money

Headline in Yahoo: " Home sales surge in June with inventory at 42-year low" and the Dow obliges with a hundred point pop.

Meanwhile Calculated Risk gives his usual reliable take: New Home Sales: Worst June on Record and the Consumer Metrics Daily Growth Index drops to minus 3% as the duration of the current contraction in consumer spending hits 6 months This, plus the ECRI leading indicators crash of the last month screams double dip even as the market tries to retake the highs of this bear market rally. The disconnect between the economic tea leaves and the markets is glaring, and despite Mr Keynes' famous dictum ("The markets can stay irrational longer than you can stay solvent") I think the break is coming soon.

My prediction: the markets are going to roll over in not more than 3 weeks as the July data starts coming in. By the time September data arrives in October, there will be panic selling as the double dip gets priced in. At that point we will see the lows of March 09 re-tested.

Whether I am right or wrong, being long equities right now seems hugely risky.

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