What I am seeing now in addition to this issue is the additional ones of an overbought Market that has trended upward AS an overbought Market and, as you pointed out in your piece a market that has priced a Defacto V shaped recovery into equity prices. This in itself would not be so troublesome if it not for the fact that there is so much elsewhere that can serve as the next catalyst to take this Market down in a significant correction, a correction that could turn into a full blown retreat.Things can go wrong so very quickly. Dubai should have been a wake-up call to anyone who thought we were out of the woods. and then came Greece with all the ‘PIIGS’ trailing behind it. Now Portugal . Today’s Auction of Greek Bonds was very telling. The point spread was enormous. What it showed was that buyers would rather hold German Debt for 10 Years than to hold Greek Debt for just 13 weeks! What does this tell you about the real confidence in how well the Greek ‘Bailout’ is going to work and yes my word choice was deliberate. You might as well take that “Loan” and start a Big Bonfire with it cause it ain’t never coming back.

As a matter of brevity I’ll mention only in passing the troublesome developments in China and both National and State Debt problems in the US. Now there is the SEC’s vendetta against the Big Banks, Dick Bove called the Govt. move against the Banking Industry ‘A Death Wish’, He’s not what I would call a Bear since he is still Bullish on GS

How’s this for a ‘Long Black Train’?

Anyway just one or even two of these things would be worrisome if we still believed in the myth that the World Economies were somehow ‘Decoupled from each other. That theory now, is as much a pile of ashes as that ‘Bonfire’ would be.

If I’ve learned anything over the last two years it’s that when real fear grips the Market.all bets are off and you can’t hit the sell button fast enough Even the Bulls get slaughtered.. Am I still trading the Market? Yes. but I’ve rotated out of most all of my positions except Pharma and Healthcare and into selective inverse ETFs . I believe, and mind you I KNOW there are a lot of people who would disagree with me, we haven’t SEEN fear like were going to see the next time. During the last big sell-off (3/09) we didn’t have or at least didn’t know about all the other sharks in the water. Now we do. The problem with surprises is …well….. they take you by surprise: Like last Friday’s announcement. I’ve gone longer than I wanted to but I want to ask for your input on a couple of last questions. Taking into consideration the aforementioned very real problems, do you think that a major sell-off like we had a year ago is non sequitur? Have I become too cautious in staking out my portfolio positions? If not what is/are your criteria for getting in/out of the market? Just curious.

I honestly think the truth is somewhere in the middle. Goldman getting sued by the SEC is a BIG DEAL. And I certainly didn’t mean to imply this wasn’t the case. The action has ramifications that will take weeks and months to sort out. We’re talking about risk for all other securities underwriters, for the financial industry as a whole, and essentially for our economy (as this lawsuit has ripples that spread into the very bedrock of free capitalism)

Remember, for a minute that when this security was being put together, John Paulson was a nobody – essentially a small-time hedge fund manager looking for a big break. The investment bankers thought he was a nut but liked him because he was helping them generate big fees by taking the other side of his trades. So if the concept is that a “mastermind” was picking out the mortgages that were destined to lose, keep in mind that Paulson had yet to be proven to be a mastermind…

Anyway, despite the fact that I think the suit really is a big deal, the current bull market is so very strong that it will likely take some time to set in. That’s why I expected a relief rally shortly after Friday’s air pocket (although I must say I didn’t expect it to reverse the majority of losses on Monday and Tuesday).

The true test comes NOW after we have had time to adjust and evaluate the long-term ramifications. If the market can press to new highs and continue to operate with momentum, then I will have to step back, close shorts and take short-term stabs at the long side (while managing risk and continuing to build a short-list)

But if we are unable to retake the highs, if risk is actually going to be a factor when deciding what to invest in, if momentum stalls and “story stocks” lose their appeal, we could enter a short-sellers dream – an era of falling expectations and declining multiples.

If you’re a bull, it’s a concept you should at least be aware of and have a hedging plan to help you survive. If you’re a bear, you should already have a game-plan in place complete with momentum stocks on the chopping block and an eye for particular profit points…

And if you’re an agnostic?? Well, then you probably know all this already…

The peril lies, precisely, in paying the slighest attention to the media, which has an astounding track record of being ill-informed or flat-out wrong on almost any prediction, most all of them negative.

While circumstances may be ripe for a mild stock market correction, given the scale of the recovery over the past 14 months, I agree with your assessment about the ‘noise’ and ‘wall of worry’.

While the recovery should soon enter a consolidation and more modest growth stage, I doubt that it is over by any means.

Did Greece collapse? Portugal? Spain? Anybody? How long has volcano-phobia lasted? Goldman-itis? All this stuff is noise.

Despite all the endless palaver about this or that “crisis,” they do and will turn out merely to be the new “fear du jour,” as corporate earnings and revenues –where the rubber really meets the road– continue to advance. Those that make contrarian plays against each new anxiety attack will continue to make money, while those that react to each new forecast of doom will not.

This market is climbing the very classic “wall of worry.”

The last time the market tanked, the economy was just entering a recession, people had some confidence in the government. Their fingers where not on the sell trigger as now.

Sell in May and go away!

I think you’ll see a correction and maybe a more lingering attitude that the market is somehow tainted.

The pendulum swings both ways and when you have so many saying it’s a bull market to try to get momentum moving, an SEC fraud case swings it back the other way pretty quick.

Last time I looked almost any reportable corporate, industry and/or government number was showing signs of trending up strongly.

You caught the vital point so many are missing concerning the nature of the charge against GS. On the other hand, you may be overly pessimistic about the economy and markets.

I agree with the conclusion as well. I’m even convinced retail investors were net buyers on Friday, as they’ve been hearing a pullback would be healthy and ultimately bullish. Prices are in the clouds and nobody outside of Wall St is selling…. yet