I don’t know when the markets will go down, but I know that they will for the following reasons:

1. LT interest rates are rising. At some point, perhaps very soon, investors will decide that it is better to lock in a 4% return than to continue to speculate in an overheated equities sector.

2. The Fed has a vested interest in driving long term rates down. The way they do that is to scare people out of equities and into LT debt. More debt buyers will drive rates down Where’s the money going to come from? Equities. That’s what happened last fall and as rates rise, they have more incentive to do it again.

3. The underlying problems have been ignored and papered over. Changing accounting rules, rigging stress tests, etc. is not a fix. It is a cover up. Alt-A and Option ARM loans are a ticking time bomb. They are also the reason that the Fed absolutely has to keep rates low. QE isn’t getting the job done. Look for them to do it another way. This is not speculation. Ben, Obama, Geithner, Paulson, Bush….they all have bet the future of this country on a strategy to keep rates low. They are not going to abandon it now.

I don’t mean to rain on anyone’s parade, but there’s a lot of wishful thinking out there masquerading as analysis. There is nothing fundamentally to suggest recovery. The long term interest rates suggest that a manufactured event may have to take place to save the banks. SPX earnings continue to plunge as stocks go up. This is a short term displacement that has to correct. How many posters think earnings are going to shoot up soon? Even the Fed acknowledges that this isn’t going to happen.

Connect the dots folks. We could continue up for awhile, but it is a fool’s game. Be careful. Preserving capital is job one. Good luck to all.

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