we have entered the initial phase of what promises to be a uniquely vicious cycle: Foreign investors pulling the plug on Wall Street

Read the rest here: [url]www.dailyreckoning.com/[/url]

There is such a viciousness going on in the stock market, it is sickening. Read the Yahoo message boards about the short traders bragging about shorting companies into bankruptcy. Short trading is the number 1 reason we are seeing such a bear market. But their day is coming, when the market finally starts going up, they will not believe it, short some more, keep going up, short more, up some more, short again. Then the margin calls will start coming in and the Bulls will run away with the market. The day I hear of shorts jumping out of windows I will rejoice.

Actually, according to a piece in the WSJ on Friday, the market is still overvalued by roughly 5X what it should be at this point in the cycle.  A bottom in a recession should occur with the S&P at a P/E of around 8.  Right now it's still at 40.  This gives you some idea of just how overvalued it was two years ago. . . .

That's why there's an old saying in the market that, "There's nothing so generous as a scared short."

I don't care for the concept of short, either.  Buy it or not: none of this other nonsense.  Yeah, you can protect a position by a put option, but that's a slight difference.  Might be a better market and economy if the derivatives didn't exist, either.

I heard the DOW still has room to shrink, maybe to 8000, but the NASDAC is still majorly overvalued, with a bottom of 1000 possible. Some talking heads are saying don't buy anything until the 3rd qtr numbers come in because it's likely if we are going to bottom, it will be in the Fall.

Remember the author who wrote a book arguing the DOW should really be 35,000? I wonder what happened to him? he he

There also happens to be a confidence gap in the ability for public companies to convince the investing public of their honesty. Foreign investors piled money into this country because for the most part our corporate accounting were deemed to be first rate and that the US companies are capable of a much faster rate of growth than similar sized companies in Europe or Japan. But now that our credibility is tarnished and much doubt has been cast whether the growth of the past decade were all an accounting trick, it'd be difficult for foreign investors to justify investing in the US.