The beginning of the end?

Looking at the price actions of stocks over the past week, I cannot help but feel extremely uneasy. What else can explain that after UOB became the top gainer on one day, and then the top loser the next. Is the smart money moving out after every uptick?

The backgrounds:

2009 saw traders push the S&P up 70% off its lows in a drunken orgy fueled by 0% interest rates, trillions in bailouts and twisted backroom dealings.
But now the hangover is set to hit. A blinding, head-pounding, night-sweats reversal that is sending markets plunging once more — and will drive most individual investors out of the market for good.
Not even the “good earnings” this quarter can whitewash the rot that exists just below the surface of this market. That is why the smart money is already heading for the hills.
The pros are selling into every little rally, banking the last of their profits and slipping away — trying to leave you holding the bag, AGAIN!
Dispelling the positives:

#1he housing market is about to come roaring back.
Not! Beginning in late March, people will be shocked back to reality. The Federal giveaway ends in April; mortgage rates will rise as the Fed slows down purchases of mortgage-backed securities; and the FHA will beg Congress for more money, as it suffers stinging losses on new junk mortgages.
By my estimates, another 2.5 million foreclosed homes will be added to the housing inventory in 2010.

#2Consumers spending will spur a new golden age of prosperity.
Sure it will. The average American with housing and stock market assets has lost 1/3 of his wealth. Wages are stagnant and work hours are shrinking. And judging by the new rash of layoffs throughout corporate America, by the end of the year — real unemployment and underemployment will be 20% or more.

#3Demand from China will keep us growing.
Don’t fall for that load of bull. The “experts” claim China is growing at a 10% annual clip. But if you discount all the government spending to build factories, and the like, that aren’t needed or used, the growth rate is truly more like 3-4%.
Chinese leaders are getting very nervous — that’s why they’re tightening credit now. But it’s too late. The whole thing is a house of cards about to come tumbling down.

Conclusion
The Great Recession isn’t over — it has just been taking a very short breather. Get ready for a nasty return to reality.

-Michael Shulman, 12/2/2010


The (chinese) economy, for sure, will slow down meaningfully this year. It has the potential to crash because of the overcapacities that have developed, and when loan growth slows down, we don’t know how the economy will react.” -Marc Faber, 12/2/2010


I think it's a great time for people who turn bullish in the first quarter to get out of the stock market... we're now in territory where you need to think about lightening up stocks, even getting short. I think 2010 is going to be a big down year very much like 2008."
-Robert Prechter, 11/12/2009


By end 2010, stock markets could be down by 20% from current levels. 2009 and early 2010 might be the last autumn of golden yellow before the onset of a long cold winter, and some time in 2010 may be the start of the second leg of the global bear market, which started in late 2007
- Chua Soon Hock, Dec 2009

I am drawn to these arguments not just because they are interesting and catchy, but because I feel they are very real. After all, the stock markets have rallied tremendously, but fundamentals in the real economies of many developed countries have not improved much. In addition, I believe that China will slow down after such a sustained period of growth. Lastly, the bubbles in asset classes such as property (Condos, HDB at sky high prices) and gold cannot possibly go on for much longer. Therefore, the bear market that started in late 2007 remains incomplete, and have every reason to resurface this year. It is time to plan for my exit strategy.

My strategy:

1. To get out of my long-term holding in SATS soon

2. To get out of my long-term holding in Swiber, 1st half before results announcement on 26 Feb, and the rest immediately after results announcement.

3. To get out of my short-term investment in UOB, 1st half before results announcement on 26 Feb, and the rest immediately after results announcement.

After which, I will be entirely in cash, and look for opportunities to short stocks/ long dollar. Let's forgo this rebound, as it is not as strong as it should be.