By Ron Struthers, Posted Wednesday, August 26, 2009

As you know I am skeptical on how long this rally in the markets will last and as per my recent updates we are into scenario two where I expected at best that this rally could last into September sometime. We are fast approaching that point and I have updated the selection list and have a number of stocks to take profits in and a few others we got stopped out of. The good news is the average gain of all the picks in the newsletter so far in 2009 is a stunning 101%. That is the average up 86 stocks since Jan1st 2009 and includes about 32 stocks that have been sold and positions closed out. That brings the Selection List down to about 54 stocks and I would like to get to 50 or less. At 101% it far outperforms all the indexes and benchmarks. My goal was to achieve a 100% return this year - so I want to preserve this and make sure we keep these gains.

Why is this a bear rally? Why will it peak soon?

Some very good questions and I know I am becoming a very small minority as most everyone has been converted into a bull and are screaming a new bull market. Honestly, I hope they are right and we can still make $$ in a bull market with the 50% to 60% of our funds invested, but I am still of the belief that we need to have substantial cash values. For one thing, remember that I was the small minority and a lonely voice that was saying to hold and buy when the markets were getting slaughtered in Oct 2008 to March 2009. So once again I am a lonely voice that is crying 'just a bear rally' and to take profits and sell."Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March," said Michael Hartnett, chief equities global strategist at Banc of America Securities-Merrill Lynch Research, in the report which surveyed 204 fund managers who manage a total of $554 billion. A net 75% of survey respondents believe the world economy will firm up in the next 12 months, the highest reading since November 2003, while confidence about corporate health is at the highest since January 2004. A net 70% of panel respondents expect global corporate profits to rise in the coming year, up from 51% last month. Meanwhile, average cash balances are at the lowest levels since July 2007, while equity allocations rose sharply between August and July -- from 7% to 34%. When I see fund managers more bullish than they have been in years - who is left to buy - how can it get much better? These questions worry me!!

There is no recovery - no 'green shoots'

Wholesale prices in the US fell more than forecast in July as energy costs receded, capping the biggest 12-month drop on record. The 0.9 percent decrease in prices paid to factories, farmers and other producers followed a 1.8 percent gain in June. These prices are a good indication on how corporate America is doing and quite often a drop in producer or wholesale prices precedes a drop in corporate earnings Imports at Los Angeles, the nation's busiest port, are down 16.9% compared with a year earlier. For the year, traffic is down 15.9%. When you look at the collapse in import volumes and consider the contraction still taking place inside the US economy, a picture emerges of 'dying grass' at odds with all the "recovery" talk and 'green shoots' .

After the housing crisis and now with Corporate America in a downturn, commercial real estate is the next shoe to drop. US commercial real estate values in the US fell 27 percent in the year through June. Estimates are that rents for offices, shops and warehouse space may continue to drop through 2010. The Moody Commercial Property Price Indices fell 1 percent in June and are down 36 percent from their October 2007 peak. This will hit the US financial sector broadside in the months ahead. Despite last week's stronger-than-expected home sales data, many analysts are now warning
that benchmark economic reports have been skewed by government stimulus efforts - including the tax credit for first-time home buyers, which concludes Nov. 30, and the "cash for clunkers" program, which wraps up this week.

Capital One Financial Corp. (COF) in a filing last week said the annualized net charge-off rate at its U.S. credit-card business rose to 9.83% in July from 9.73% the previous month. The company said 30- day delinquencies rose to 4.83% from 4.77% in June as borrowers struggle to keep up with their payments in the recession. As you know I am a big believer in market cycles. Markets move up and down driven by various factors. One of the best authorities on cycles is Harry Dent. He predicted the boom cycle to 2007/08 and predicted the bust. His last two books exemplify his great timing on these cycles. Although longer and medium term cycles are not exact science and nobody can perfectly predict short term - Dent's track record should make anyone take notice. He is also calling this a bear market rally and predicted it would peak in the late July to mid September time frame. Here is a few points from his August newsletter you can find at:
http://www.hsdent.com/

"Our cycles have never been more in confluence to the downside, both long term and intermediate term. The worst year for stocks probably is still to come, between late 2009 and late 2010."

"Most economists think that we are going to see a clear recovery between late 2009 and early 2010, although they argue about how strong or weak this recovery will be. The bearish minority mostly fears an inflationary blow-out sooner or later. We are clear about seeing a deeper downturn or depression starting next year, with the markets very likely to turn downward by early September,"

"Newsweek's current cover is; The Recession is Over. And the major pundits on CNBC, Jim Cramer, Larry Kudlow, Dennis Kneale and others are raving and ranting that the recession is over and we are in a new bull market. You can't get more bearish than that."

These points re-enforce what I have been saying that the Fed/Government action has failed to reinflated the economy but has only inflated the stock market. Too many investors/advisors are yelling bull market.