Storm is coming

The market marched on, with Dow and S&P500 up about 0.4%. ECB and Fed again injected 57B and 31B respectively into the system. You wonder what's going on. And yet market marched on, thinking a tiny 0.25% drop in U.S. rate will cure all!

1. Housing market shows the worst is yet to come, with more than 2M home loans to be reset to higher rates in 07 and 08.
2. Credit crunch is at its early stage. Libor climbing for 11th straight session to fresh 7-yr highs, this is just one sign of credit crunch.
3. ISM show economic activity is stronger than people think. Why Fed should bail out risky investors?
4. We are down less than 5% in S&P 500, considering all the issues we have, and hedge funds are begging for a rate cut!
5. And tomorrow's job report will play a role to assist people to predict on how Fed will move.
6. I think regardless how Fed will move, we have serious issues here, it won't be cured by Fed cutting rates.
7. The asset bubble across the global can not be cured by a rate cut. It has to be readjusted. Like all the bubbles in history. If anything, rate cuts and liquidity can only make things more painful in the end. Just like the internet bubble we had in 1999, Nasdaq went from 5000 in 2000 to 1100 in 2002.
8. So we'll have two paths to current asset bubble:
9. We have a correction near term, and maybe a short bear market to work out the overheated asset bubble. Market may go down 20% in this case.
10. Or the market marches on to create even bigger bubble, because the Fed will bail us out. This in the end, will create even longer and deeper bear market. Market may go down 50% if we have another rally to all time high from here.
11. So let's trade the market as the best I can, and knowing the first major move (20%-50%) is on the down side. Just don't know when and from where.
12. Gold and PM broke out today. I think they'll go down with the market. So I wait.
13. VIX again showed there are lot of risks in the market. And I think something is up. A storm is coming. Let's be careful on the long side, and continue to add on the short side.
14. And I'll focus on short term plays. Now I'm leaning to short.