I worry about all the same things:

1) The Bernanke Put – I think the last release of the FOMC minutes was the Fed saying to the markets: “You’re on your own.” It may have even been a green light to the bears to take down a few banks. I understand that both Lehman’s and Merrill’s CDS insurance is spiking…

2) Commodities Collapse – I think that is coming, but see my note to Larry above. With Dow Chemical kicking off the recent wave of giant price-hikes, commodities could even spike much higher as an inflation hedge.

3) Low Rates – Yes, low rates are certainly a catalyst for stocks, but maybe not just yet. On November 6th 2001, Alan Greenspan lowered interest rates to 2%. It took the stock market over a year to bottom after that. We have only just gotten down to 2%.

In addition, if the market were to move to new highs here, then this would be one of the longest bear-market rallies in history and a strong hint that the economy is expanding and a new bull market has begun. Maybe that’s possible, but I don’t see any fundamental indicators that would even remotely suggest it.

Jim Cramer is the only person actually worrying about the economy expanding too fast. He is worried that Friday’s jobs report will show too many jobs created which would cause the Fed to tighten in a panic! Maybe he’s right, but I think that he’s lost his mind.

I think that the smart money is selling hard to the dumb money here. While it is true that a tsunami of retail investors could overwhelm the smart money (quantity has a quality all its own), I’m siding with the smart money. If the economy were actually expanding, I would join the baby seals!

Matt

I think we need a crack in the global economy before we see a meaningful crack in the price of oil. I think that is coming, but last week’s pull-back in oil might just have been some traders taking off positions that didn’t exactly conform to the spirit of the law now that the futures markets face tougher regulation.

In addition to the credit-tightening you cited, many countries like Indonesia are dropping their fuel subsidies because they can’t afford them any more. Prices will rise sharply and demand will be reduced in those countries.

Matt

You may be correct in your assessment of current market conditions. I can cite several technical reasons why we’re still in bear market mode (and, of course, many many fundamental reasons). For the most part I share in your bearish enthusiasm. However, whenever I start to feel “certain” about the market’s direction I like to think about what could change the scenario. Here’s the potential problems I see with the bear case (I am sure you can think of more than these): (1) the Bernake put; Bernake’s actions (which were recklass in my opinion) have emboldened traders to believe that any negative action can be swept away by the federal reserve; (2) possible commodity collapse (or just plain vanilla weakness); if it occurs, players could interpret it to be beneficial to the markets in general thereby causing a lift in the averages; and (3) unreasonably low short term rates; where are retail investors looking for a decent return on investment? Housing prices? Not likely. Commodities? See #2. Bonds? Perhaps, but even though the long yields have been ticking up, there doesn’t seem much value there. So the market could be the vehicle of choice by default.

Sorry for such a long post.

Regards,

Jim

In the meantime, do not let short-term noise distract you.

As for oil, look out below, China, India and Vietnam are tightening the money supply to combat inflation. Russia, Ukraine, S Africa, Argentina will be forced to follow very soon before Zimbabawe-like inflation starts to creep in. Credit continues to tighten in USA and EU.