Is the worst finally over?

From what I have read this week, majority of the experts in this forum believed that, all bad news have been exposed and we have seen the worst. Bull camp was booting bear camp and any bear discussions on this forum were counter attacked by all bull experts.

On a technical standpoint, bulls seem to get the fact right. The stock market reached a low in January and then retested that low in March when Bear Sterns almost caused a financial system meltdown. Media are talking about recession out loud. Fed's proactive easing and massive money injection also provide hope to the public that, Fed is on our backs. The combination of all those factors further strength people's belief that, the worst is over and it's time to load up the truck.

People seem to ignore the fact that, we are in the middle of probably the largest debt bubble in the US history and the scale of this bubble is larger than 1990 junk bond bubble and 2000 stock bubble combined. They seem to forget that it took almost 3 years before the 2000 stock bubble being resolved and by then, the S&P has lost almost 40% of its value.

As I have stated multiple times on this forum, the subprime mortgage crisis only reflects part of the whole debt crisis and it would be naive for people to think that, it can be contained and resolved within months. The American Realtor Association has initially predicted that, the housing sector would recovered by 2007 and now that time frame has been postponed to 2009. I still think that's too optimistic and I don't think the housing market will eventually settle down until 2010-2011 time frame and by then, I believe the housing market will drop another 10-20%. And the housing market slum would further take away a substantial number of jobs. After all, housing market related jobs represent a significant part of the US work force.

People also think that, it's not possible for both housing and equity markets collapsing all together because wealth must be generated one way or the other. For those who hold such opinions, please look no further than 1997 Asian crisis. Of course you can argue that, US market is very different from Asian market. However, don't forget that, back in 2000, people were having the same thought thinking that US market was invincible and American economy was different from the world economy. And guess what, the bubble deflated with Nasdaq losing about 80%.

This rally does have legs. It might even cross the 200 MA and break the down trend. However, we need to play such kind of rally with extreme cautions and with skillful hedging. Besides keeping a core portfolio, always keep a high percentage of cash position. There is always money to be made somewhere and if you miss the boat, there is always the next boat.

With all due respect to the bull camp, I believe that the worst is yet to come. The final ramification of the debt bubble unwinding will be severe and ever more painful. This rally is built on hope and it's when that hope was broken, people start to jump from the cliff. The bottom set on March is A bottom, not THE bottom. You can have my words for it.