Don't be Fooled by the "Denial Bounce"!

A little commentary tonight folks!

I wanted to just send out a warning tonight after listening to bubblevision today. The pigmen were on all day pumping equities.

Some common themes from the bubble boys as they pumped:

1 The US will be the first one out of the global recession so you need to get in now and buy.
2 The instability in Georgia makes the US a safer place to invest.
3 Oil/gold are dropping which is pushing investors back into equities. Don't be the last one in!
4 Inflation has peaked and we have seen the worst of it.(yeah right)

Lets take a reality check on each of these points:

Lets start with #1. The US may be the first one out but it might be a decade from now. The pigmen always want you to think that a new bull is about to begin. The reality is we still haven't taken the credit losses from the last bull run. until this happens, equities aren't going anywhere.

Point 2. I am still trying to figure out why this is a good reason to buy equities. If you are looking for safety then why wouldn't you just come over to the US and buy treasuries?

Point 3. Oil is dropping because the bottom is falling out from under the economy. This is an easy spin job for the pigmen: Gas is cheaper so the consumer is back. I say yes, gas is cheaper, but its still 4 fold higher than it was 5 years ago. Never mind the fact that people are starting to choke on their debt.

Point 4. Yeah ok, then why was inflation double expectations this month. Note that the biggest reason for the increase in inflation this month were prices on consumer items not gas.

My Take:

These idiots are all rotating out of gold and oil back into the equity markets. The problem with this move is they got out of oil/dollar trade and rotated into a hornets nest(US equities). The fundamentals are as bad as I have ever seen them. You know my argument so I won't repeat it again.

When the pigmen realize what they rotated into has zero earnings power, they are going to get crushed. There will be an inflection point at which they all realize this. When this inflection point occurs, you are going to see a drop in equities that will be a once in a lifetime event.

Look at the stocks that are rising during this "denial bounce". Financials, homebuilders, and retail all had huge days today. Each of these sectors all reported horrific news this week. There is no fundamental reason to be in these stocks right now.

What the bulls will soon realize is they are WAY too early and they will all head to the exits at once. I believe you are going to start seeing a lot of this speculator money start to dry up.

I say this because each rotation will reduce the amount of liquidity that these clowns have, because most of them get too greedy and end up taking losses. Imagine the billions that have been lost since oil and gold have plummeted. Now were some of these traders smart enough to get out before the big dump? Of course! However, the majority stay in the trade too long and got creamed because this is how speculative bubbles blow up.

When the speculators make money on a trade like long oil, they continue to leverage more and more into the trade until it unravels violently. When the margin calls hit they are forced to sell more gold and oil in order to raise cash and cover. This makes the reversal even more violent and painful

Bottom Line:

Expect a huge equity pump from the pigmen in the coming weeks. They realize if this pump doesn't work the game is over. There is nowhere else left to speculate and they know it.

The problem they face is the earnings are not there to get the game going.

Stay on the sidelines and let these speculators burn themselves out. Each bounce will be smaller than the last one until reality sets in. Notice that this weeks bounce was achieved with extremely low volume.

Remember, bottoms are never seen until no one wants to own stocks anymore. The debt/financial markets are falling apart, housing is a mess, and the consumer continues to tank. This is completely being ignored by the pigmen because they have nowhere else to play other than the stock market.

I expect that you will see a strong reversal to the downside next week. The rally today looked extremely tired.