Here are some interesting tidbits before the weekend.

The more I look at it, the more I think this rally in the market has been about businesses cutting costs rather than growing revenue, thus keeping earnings respectable. However, they cant keep cutting costs forever. They cant keep laying off people forever. After all, they have cut deep and laid off millions already.

Until revenue grows which then facilitates even higher profits, which then brings new jobs, how can anyone say we have a strong recovery?

It also appears to me that there has been a massive reduction in short interest, meaning shorts have covered thus pushing the market higher. This could suggest the rally is not being fueled by an influx of new money and new investors.

Also, President Obama’s two big issues sans the failed stimulus (waste) package are cap and trade (tax) and health care reform (destruction.)

As cap and trade could be in trouble in the senate, and health care facing trouble just getting out of the house, maybe the market likes the idea of two bills that would do terrible economic damage dying a slow miserable death. I know I do.

As I wrote late last night I believe the downside risk now is far greater then the upside potential which in the short term I see as around 15%. It was late, so this is a little more of my thinking.

I am not selling any of my core holdings. However, today I sold off some of my trading positions into the strength of today’s rally. I am not buying anything new right now. I am in cash and my safe core holdings, so I am ready if we see a correction or a major move to the downside due to the continued weak economy.

All it would take for this drop to occur would be a change in investor sentiment. If investors wake up one morning and say they would rather pay 10x forward earnings instead of 15x due to the lack of growth in the economy, you could see a retest of the march 9 lows. I am not predicting this, since I only predict things when I am 99% or more sure as I was when I said 10 year treasuries would hit 4% and then sell off, which they did.

I cannot say whether we will retest the march lows. Perhaps in the future I will able to say, but not now. Therefore, I am well positioned and prepared for anything.

Today the S&P 500 closed at 954.07. A 15% move up would take us to about 1100, and though I think that is really pushing the envelope, it would not surprise me. Today, the downside risk looks far worse to me and it is not impossible that we revisit the march lows which would mean a 30% correction from here. There are some very dire predictions out there about breaking down below these levels and I think it is very possible. No matter what the market does though, the real economy will be very weak for a long time even when it stops contracting as the recovery won’t be robust. The term jobless recovery will be an understatement. This is my warning to you. Be careful.

The strength in the stock market since March 9 when I posted I was jumping back in despite a weak economy has been incredible, but there is no corresponding strength in the real economy today and the government is making it worse. Industrial output as plummeted. We have to understand that we just lost about 467k jobs last month. The peak of losses so far per month was around 651k, so the pace of job losses has fallen but there is a problem. This means that literally millions more will lose their jobs before this is over. 467k multiplied by the remaining 6 months of the year alone equals about 2.8 million more jobs lost. Sure, the rate of decline should slowly improve so we won’t lose 467k every month, but job losses could easily last longer then 6 months anyway. I will say it is a guarantee that at least 2 million more people will lose their jobs and that is my optimistic scenario.

Now, you should know that I will not sell all my stocks. I am not the type to say sell everything and get back in later except in the rarest of circumstances like last year. I have a core group of holdings that pay safe dividends. I also have holdings that I trade. I take advantage when the market begins to sell off because I always have a huge amount of cash sitting on the sidelines ready to jump in at depressed prices. This has grown my safe core holdings and given me huge profits on my trading opportunities. It is a discipline I have learned, and I apply it ruthlessly.

Here is an example. Goldman Sachs fell to below 50 after falling from 150. Today, it is right back to around 150. MGM Mirage fell to below 3 and then bounced to 13.  Now, if you had put all your money into the market, you would never have been able to take advantage of these huge drops even if you knew they were great buys which they were. This is very frustrating when you know you are correct in your call but don’t have the money to act on it. So, always have cash on the sidelines!

This is a chart I quickly took from Yahoo! Finance and then added some things. It is the S&P 500 from about 1949 to today 2009. I approximated the years due to the large time frame covered and I could easily alter the years a little to be more precise, but for this discussion that is not necessary. It represents something known as cycle theory. If I had made the chart larger you would see another bear market prior to this chart, and yet another bull market before that. As you can see, there is a clear pattern of long bull markets and long bear markets.

Analysts, economists, and market watchers always disagree over the market so I can only give you my take on why this occurs. I think two factors are mainly responsible. The first is human nature. Inevitably, we over indulge, thus pushing our economies to the brink based on too much debt and over consumption. Eventually, the bill comes due and then we bust. The second reason is government incompetence. You should know that these long bear markets coincide perfectly with terrible government economic policies. While the government could never stop a bust from occurring, they can and do prolong the bear markets by interfering with the economy. Currently, we have an out of control government that is firing CEO’s, nationalizing huge companies, bailing out others, borrowing unprecedented amounts of money, and then spending it irresponsibly. Hmmmm, sounds like this fits perfectly doesn’t it?

Here comes the problem. If this holds true, then we could have another 6-8 years of an essentially flat market. From here, it could be down a little, or up a little , but it won’t make new highs if this cycle theory chart holds true.

While I disdain about 90% of the media as they are corrupt to the core, I do think Investors Business Daily is worth a read. Their polls have been very accurate, their financial news right to the point, and their editorials are sharp and interesting. Their new editorial is on George Washington, Sarah Palin, and the media reaction to her. You can find it here.

The editorial points out that George Washington quit the Virginia militia. So then according to all the “experts” in the press and punditry, George Washington was a “quitter.” Well, if their logic is correct then we might as well take him off the one dollar bill. Think about what would have happened if the media of today existed back then? The editorial pokes fun at this idea and the absurdity of it. The media would have attacked the man that we know today as arguably our greatest president. By the way, if the pundits and “experts” are right about Palin being a “quitter”, and therefore Washington was a “quitter” too, why would we want a quitter representing us on our currency? I assume then they want him removed from it.

Of course, that is lunacy. Neither Washington or Palin are quitters. Were their decisions unorthodox? Sure. Were their decisions bad? Well, Washington is on the one dollar bill so it doesn’t seem to have hurt his career or legacy and Palin’s final chapters have decades to still be written.

Orthodox thinkers rarely make history and rarely get rich. I could go into great detail about Sarah Palin’s reasons for her resignation and why she was correct to do it, but that is not the point of this post. The point is, “experts” and elites in the political and media classes should not be seen as the fonts of all knowledge. If they are so smart, why are we over 11 trillion dollars in debt with 10 trillion more to come at least? Why were their predictions so very wrong about our economy? Yet, you can read right here at this blog what I wrote months ago and it has all come true.

Most people who want to be investing professionals go to top ivy league schools for finance or business. They work at financial firms. I went to an all commuter college in Chicago and majored in English. I am not a super genius, but I think out of the box and never follow the herd. I lead the herd in my investing. I get out ahead of others. I see things before others do. That’s why I succeed. Palin sees something too.

So the next time you see an “expert” on TV making predictions or trashing someone, keep in mind what their agenda is. What credibility do they have? Do they have an axe to grind? The other day I actually saw Bob Beckel trashing Sarah Palin. You should know that Bob Beckel was the campaign manager for Walter Mondale. You should also know that the Mondale Campaign lost to Ronald Reagan by a margin of biblical proportions.

Reagan 525 electoral votes and 49 states.      

Mondale 13 electoral votes and 1 state.

So why the hell would anyone listen to anything Bob Beckel says? The guy is a loser who had no success at all. I could have won 1 state and so could you! Yet, he is put up as some kind of political “expert.” Shocking. I research these things before I take investing advice to heart, and you should do the same whether investing or voting.

Don’t be afraid to be unorthodox. History is full of people who do their own thing, so do yours. Next time the pundits are making proclamations, say “thanks, but no thanks.” However, you could take the more diplomatic approach I use.

“Shut the **** up.”