Sick and tired, but still not ready to buy

Sure I am sick and tired of the global doom and gloom. I would like nothing better than to call a bottom and turn bullish and embrace this rally we are seeing, but I just can't do it.

This can ONLY be a bear market rally which means the smart play is to sell or keep you cash and wait for the next leg down.

I have no crystal ball and may be proven wrong, but I doubt it.

2 key reasons we have further to fall.

First and foremost the panic selling is not simply emotional panic selling. It will not turn around just because investors have a change in heart.

Much of this torrent of selling has been from hedge funds deleveraging and the signs are that this process has not yet run its course.

Hedge Funds May Sell $200 Billion More

Hedge funds are about halfway done selling securities to reduce their use of borrowed money and may unload $200 billion more to complete the process, according to managers surveyed by Sanford C. Bernstein & Co.

The survey found that 63 percent of hedge-fund managers said the sale of assets to cut leverage was at least half completed. Twenty-three percent said the process was three- quarters finished, New York-based Bernstein said.

Hedge funds, which borrow money in an effort to increase trading profits, have been forced to unload assets to meet client withdrawals and tighter lending requirements. That has amplified losses in the stock and bond markets.

The second reason is really a lack of reason. What possible rationale can be given to support a long term rally here?

We are in a vicious global sell off driven by a massive credit squeeze. Hedge funds are selling, investment banks are selling, individual investors are selling. This is not a simple question of emotional panic, but a question of necessity and survival. They are selling because they NEED THE CASH. Either they need it to make capital calls or to keep their business alive or to fend off foreclosure on their home. This is not discretionary, it is compulsory.

It all comes back to leverage. We are witnessing the deflating of a massive asset bubble. This runs goes all the way from the hedge funds and ibanks on Wall Street to the home mortgages and credit card debts of consumers on main street.

For years the US economy has been THE MAIN ENGINE of world growth powering the global economy. It now seems clear that much of that growth was funded by credit which is no longer available.

What will it take to get banks lending, investors investing and consumers spending again? I don't think anyone can answer that question except to say it is going to take an awful LOT.

Right now hedge funds are still liquidating and consumer spending is still on the way DOWN. And the weakness of the US consumer will impact business and earnings WORLDWIDE.

So we can count our blessings that Vietnam has been spared the worst so far. But make no mistake we will ALL be feeling the pain next year.

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