Ouch!

Hope you had a lovely Holiday season! I must say, though, I am glad it's over. I tried and tried to feel the spirit this year, but just couldn't get there.

I did have a few nice moments with the family, and am very thankful for all of them, to be sure. Thank God for kids, watching them enjoy makes all the craziness worth it.

So I am back to work today and the markets are killing me. What a day to be a bear! I apologize to any traders who missed the bounce (large as it was). I do not apologize to regular investors out there, because you shouldn't be trying to time the markets anyways.

I greatly underestimated the impact free money would have on the investment banks. I misunderstood how high they could drive markets in the short-term. I also underestimated the immorality of the Federal Reserve bank and its leaders. They are totally willing to devalue our currency to create paper profits for Wall Street.

So, if you are a momentum trader you have already figured out I am not your gal! However, if you are an investor, I am still correct, and you will ultimately be glad you listened.

Nothing fundamental has changed. In fact, the fundamentals continue to deteriorate even as the pundit hail our recovery. The thing I did not foresee was QE2, or the impact it would have on the stock market. I am in the process of formulating new questions about the world economy and how it works. Questions like these:

Does paper money create value?

How many states are on the verge of bankruptcy and who will bail them out? How dependent are the poor on state and local welfare programs and how many of them are there?

Is our Government willing to default on its treasury obligations?

Are the "profits" Wall Street is trading on real? Is it possible the combination of cost cutting and commodity price inflation are creating a smoke and mirror effect that will ultimately collapse?

What is the true state of the American consumer? Is any recovery sustainable without him?

Is the average household balance sheet healthy?

How high can we raise the debt ceiling?

For now, anyway, I have more questions than answers. Such is the nature of life. Everything happens in cycles.

Is the small reduction in consumer debt levels a result of increased write-offs, tighter credit standards, and numerous bankruptcy filings instead of a result of credit worthy borrowers actually paying down debt?

The NY FRB has an interesting new quarterly report:

http://www.ny.frb.org/research/national_economy/householdcredit/DistrictReport_Q22010.pdf
My favorite is the chart on page 9. It shows that new student loan delinquencies are on the rise, auto loans pretty flat, HELOC delinquencies pretty flat, and new mortgage delinquecies have only ticked down slightly in the last two quarters.

Page 3 shows that total household debt is about where it was Q1 of 2007, just before this crisis began.

Since I believe excessive leverage in our economy was THE primary cause of the financial crisis, I still believe nothing fundamental has changed, except that our government has given loads of our money to failing financial institutions and encouraged them to buy stocks with it.

The market is way up today...speculation abounds. The traders are back! The ISM number was less worse than expected.

I will remain short, perhaps even add to my positions, being the stubborn bear I am.