"If it is darkest before the dawn, it must be 3 a.m"

David Rosenberg, Merrill's North American economist, says in a note this morning on "What is bugging the equity market?" that This Bear Market Is For Real, and lists the reasons why (in no particular order):

1. Punishingly high oil prices (up 40% this year!) and heightened inflation expectations.
2. Downward analyst earnings revisions.
3. The Fed hinting at possible rate hikes.
4. A 100 basis point backup in bond yields.
5. Possible downgrades of the auto companies by the rating agencies.
6. Actual downgrades of the monolines.
7. Higher credit spreads; TED spread.
8. Expectations of more financial sector writedowns.
9. Poor macro data flow so far for June- Philly Fed, NY Empire Indices.
10. Sell in May and go away actually works.

All jolly good stuff, Dave - but where were you a month or two ago? As another David, "Currency Specialist" Geisker, of Deutsche in NY wrote last week, rather despairingly, of the capitulation he was seeing:

• "(W)hen we look back a few months ago, assets markets had stabilised as the Fed cut rates aggressively and was comfortable with a weaker usd, they were providing lender of last resort facilities and were implicitly supporting investment banks. We still had the tax rebate ahead and the efforts on home loans were expected to lower lending rates.
  
• "Now we have the Fed on hold with a seeming bias to tighten, 60 pct of rebates have been mailed and spent (probably 50 pct on imported goods) , the prospects for a weaker usd a less clear and jumbo housing rates have eased by no one is borrowing.
  
• "So with no apparent stimulus in the pipeline and oil prices continuing to show resilience, we are seeing capitulation on housing, banking shares and anything consumer related. If it is darkest before the dawn, it must be 3 a.m"

Interestingly, a Morgan Stanley salestrader was telling me just today: "We are currently offering downside protection (at historic lows) and see NO TAKERS. To me this just shows the lack of positioning for a move lower - so far it has all being about unwinding the hedge...not directional bets"

I am continuing to cover some shorts, slowly, though part of that is just to derisk ahead of the quarter/half end coming up next Monday.