Okay - can we have our correction now please?

A new bull market or a bear market rally.  I'm still to be convinced we are off to the races again.  In fact, I'm firmly in the camp that renewed vigour in global growth will be a longtime in gestation.  A quick recap as to why:

1) US - it's long list of problems starts withe a fragile banking system that is still undergoing recapitalisation (notwithstanding its overall health has improved with lots of new capital and a yield curve that makes it a great time to lend long and borrow short).  The banks will improve over time - but not immediately.  The US home market remains awash with inventory and again it will take time for this to be taken up.  When you couple this with an aging population that has started to save again - the question becomes where will the spending growth come from?  

2) China - has joined the stimulus party in earnest propping up its own economy and in turn commodities.  In the longer term there is no doubt that the industrialisation process will continue.  However, over the near term its economy remains reliant on exports - and let's face it, this isn't a particularly bright spot for any country right now.

3) Europe - has all the same problems as the US - it's just lagging in the deleveraging and recapitalisation process.  The EUR has benefited against the USD recently from the deleveraging that has gathered momentum - but I do not interpret this as Europe is outperforming the US.  It's not.  The movement in the crossrate is a function of capital flows for all the wrong reasons.

So to the reasons why I see a correction in equities and commodities markets:

1) Real US economic activity is stagnant (at best) - the Dow Transports continue to slosh about its lows - supported by the rail freight data for May that shows renewed weakness.  According to Dow Theory, a new bull market requires both the Dow Transports and the Dow to making new highs.  This is pretty logical - if the Dow Transports are viewed as a proxy for economic growth, there just isn't any...

2) A smorgasbord of markets have reached resistance that should prove a convenient turning point (equities at their 200 day moving average, gold bumping against its highs).  Commodities markets are overbought while the USD is oversold.  Longer dated interest rates are also due for a correction having run ahead of themselves on a combination of inflation fears and distaste for a world where the volume of government debt is exploding.  These markets have all been feeding off each other - expect the same effect in any sell-off.

3) Volatility - has broken its recent downtrend, while the Put/Call ratio is indicating a level of complacency