Happy days are here again!

From a brief glance at Bloomberg today, I get the feeling that the bounce has about run its course. The talk is all about being “contrarian” by buying financials (um, wouldn’t that have been to buy them a month ago?), buying retail because the July sales report will probably be ugly, and to buy airlines (up 12% today) because oil is falling. The dollar is strong and even gold is down $33 to a six month low (about $820).

I am not surprised by the dollar’s bounce, and I’ve been calling for gold and oil to fall for some time now, but their decline is not a good sign. For oil to fall after total world production has peaked means that demand is drying up as the economy slows. For gold to fall signals that the credit inflation of recent years is over, and that cash is the new king (though it will be a short reign if Bernanke and Obama’s masters can help it). The strength in the dollar just reflects the weakness of Asia and the Eurozone and falling rates in their currencies.

Other signs that the end is neigh are the compressed VIX (near 20 again) and the ridiculous intra-day and intra-week volatility. Sustainable bullish moves are not this choppy, but bounces are, and particularly so near the top.

Time to batten down the hatches. This was just an eye of the storm, and the strongest winds are straight ahead: hundreds of bank failures and double digit unemployment within a year:

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