The market always looks the best at the top...

          New Dow highs, massive market liquidity, takeovers, mergers, and market volatility near all time lows. What's wrong with this picture?  Nothing if you are a bear.  Every bear market begins with the climax of good news and ends with the climax of bad news.  In 1987 the Gregorian chant from the cellars of Wall Street was liquidity and corporate takeovers, and in 2000 it was the new economy and earnings that went stratospheric for a select few.  Today's environment is not as extreme per se, but that won't really be known for at least a year or so.  What we do know is that all of the classic fundamental signs are in place for a significant bear market.  Remember the argument in 1987 that liquidity was allegedly different this time around, and in 2000 where the valuation rules were different, yet again?  How about a Nymex IPO that doubles on its first day of trading and now brandishes a 75 PE?  If that is not evidence of a speculative bubble then let's list the Tulip Exchange in Amsterdam too and see how it does.        

Way Overvalued?

            The Dow Industrials now drags with it a heavy PE of 24 to each new high and the SP500 flogs a PE of 19.   Please note that few will even whisper the heresy of fundamental valuations at these levels, but they will on triple digit down days.  Other fundamental negatives include the following mainstays: 

• Yield curve inverted (see our bond analysis)
• GDP and economic numbers still soft
• Sentiment does not support bull market
• VIX and VIN volatility at historic lows
• Earnings have peaked
• Valuations now reaching upper extremes
• Housing bubble impact

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