My Present market thoughts are as follows. We are trapped in a Kondratiev Winter or a supercycle bear wave. This will probably continue for many years until real GAAP PE ratios hit historic bear market lows of below 10 and probably closer to 7. At the height of the 2000 Bull market they were 40+ which is just ludicrous. Large progress has already been made back towards fair value as they are now in the area of 16. We know that a longterm fair value average is 14. We call the markets "BULL" or "BEAR" these are representative of animals. They need feeding just like an animal a Bear market needs a constant appetite of falling stockmarket prices, interspersed with the occasional rally or Dollar devaluation. So far this Bear market has received both with the S&P 500 the broadest index a near 20% decline from the peak and a near 40% decline in the USD index. However if we measure the Dollar by way of gold the only true measure the decline has been closer to 240%.

To save the stockmarket, Alan Greenspan cut interest rates to historic lows which resulted in a huge housing boom. If you can afford a $100,000 mortgage at 10% then you can afford a $200,000 mortgage at 5%. Existing homeowners found that there houses soared in value which led to many of them extracting "equity" at low interest rates to spend in the economy. This "equity" extraction eventually falls into the bottom line of Americas largest companies as listed in the S&P 500. If profits are rising because of all this equity extraction then the PE ratio rapidly comes back into line as we have seen, which will arrest further MAJOR market declines. We have had pullbacks against the extremely weak BULL trend that has been in force since early 2003 but no major declines as per the period 2000 to end of 2002. It looks to me with the beauty of hindsight that we have had phase 1 of the bearmarket, we then had the 2003 bearmarket rally, or Iraq war rally. Since then the market wants to enter Phase 2 of the bearmarket but is being stopped by way of massive inflation and also timed intervention. If you divide the S&P 500 price by the Gold price it clearly shows that we are well and truly into Phase 2 of the bearmarket and have been since the summer of 2005.

Housing is rapidly turning into a major headache for Wall Street, the equity extraction is rapidly slowing as house prices have reached extreme overvaluation. This could easily push the economy back into recession which is what I fear, as never forget the consumer is 70% of the American economy. If the housing market slides it will also wreck the balance sheets of many financial institutions as people slip into negative equity. The major problem is that the average house to the average customer is nothing more than a leveraged margin account. If you put down 10% and the house increases by 10% in value you have made a 100% gain, you were using 10 to 1 margin. Leverage works both ways if the house fell in value by 10% instead you have just lost all your equity!.

Commodities have done very well these last four years as they are the only true bull market in town. Some of the gain has been because of genuine supply and demand issues primarily because of China and Indias growth, and constricted supply the result of a near 20 year bearmarket. However another major part of the gain has been the destruction of Dollar purchasing power. Producers want more of Bernankes devalued Dollars to pay for there finite resources. There is a lot of talk about Peak Oil. My own belief is that this is for real. It is very obvious that for oil to move from below $20 a barrel to above $60 a barrel in such a short space of time. There are geopolitical problems aside, major supply problems. The problem with investing in commodities is the extremely volatile nature of the market. I am positive that much of this volatility is deliberate and an attempt by Wall Street and the City Of London to deliberately stop the build up of large margined positions in the direction of the dominant primary Bull trend. Commodity rises are inflationary, they affect the bottom line and lead to interest rate rises nt good for the pushers of paper assetts !!!!The 1987 stock market crash was the largest 1 day fall on record even greater than 1929, we reguarly see falls of this magnitude in the commodities markets, it is a normal event. So my advice to anybody thinking of investing in commodities IS DO IT as it is a true bull market. But do not use any margin and expect a very bumpy ride, you will need nerves of steel.

That's it for now, I was expecting the Dollar to break downwards, giving commodities and the stockmarket a boost. This has not happened as of yet but we will watch with interest.