Bears Have Fight Left

The hard landing of real estate has only begun to be felt, as the downturn is still less than a year old and new housing starts have dropped by only about 15% from their fall 2005 peak. In past down cycles, the duration of the downturn has been between 25 and 52 months, and in terms of unit declines has averaged approximately 52% from peak to trough. So, stated simply, the worst is yet to come for housing, and with it, the typical adverse multiplier effect on the rest of the economy.

For now, the market's technicals belie the fundamental direction of the economic contraction and the likely drop in corporate profit margins (which should lead to revisions in corporate profitability in late 2006 and for 2007). Sentiment, as Gary "The Other" Smith points out repeatedly, remains poor (a residue of the May-June swoon) and has buoyed equities this summer.

While it can be argued that the impressive rise from the June lows has now contributed to a growing complacency among market participants, the bulls remain very much in command.

But the market, as we have recently observed, is a fickle temptress, and ignoring the rising economic and corporate profit threats might turn out to be injurious to one's financial health.

In the face of a clear pattern of upside momentum I remain steadfastly bearish (and bruised!) -- and I continue to fight the "good" fight.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting