How healthy is Mr. Market?

The S&P has appreciated with 50% - from 666 to 1,018 - since March 9 which is historic. Some pundits are arguing that we have entered a new bull market but they are wrong. This is just a unprecedented bear market rally on crack or HAL 9000 if you will.

The downfall will be brutal and based on last weeks market performance it has already started. Look at any chart for any major index and we are seeing failure to move higher and a slow rollover. Who do you think is selling into this resistance? Goldman, anyone?

Here is my take on the next 6-12 months:

• Markets will retrace 38-50% on average from the top
• The dollar will rally back to about 90
• Gold and silver will plunge (deflation and lack of consumption kills commodities)
• Oil will pullback to about $55 (pullback started Friday 8/14)
• Inflation will turn into deflation and cash is king again
• Interest rates will stay low until the rest of the world demands higher returns
• Residential real estate will keep falling but at a slower rate
• Commercial real estate will plunge
• Unemployment rates will bottom out and stay high for a few years

Welcome to the brave new world. Change is always painful but it’s for a good cause. The faster we realize that the old happy days are over and that bailing out homeowners, banks and car makers will just slow down the recovery the faster we’ll be back on both our feet. And the new happy days will be better and brighter; they always are.