Is the economy and the market about to roll over.

The US auto industry collapse will have a profound impact on the budgets of the states. Auto sales generate significant sales tax revenue. Auto dealers also pay property taxes, to local economies. The loss of the sales tax revenue, which typically accounts for 33% of state tax revenues, and the closing of dealerships nationwide, will reduce revenues for the local towns and cities. This bit of bad news is on top of the ongoing reduction of state revenues because of higher unemployment rates and continued job losses. Most states, cities and towns are faced with the unpleasant choice of cutting services or cutting government employment. Or of course, what we would expect they will do, is raise taxes. Each decision will exaggerate the problem. Most small investors feeling the pressure of declining wealth and the prospect of unemployment have in recent months, began to invest in mutual funds at accelerating rates. Small investors have been investing in both equity and bond mutual funds. Even though both have returned negative returns over the past 12 months. What surprises me is the investments in the bond mutual funds which offer very little upside, little interest and a considerable amount of downside risk, given deficit spending by the federal government and the ongoing assault on the dollar by the Fed. This increased flow in mutual funds by small investors, is a contrary indicator. We may have reached the top of this recent run up in the market. Technically, as discussed in previous blogs, the moving averages for all of the major indexes have been rolling over on low volume. The downside risk in my opinion is increasing with each passing day. I do believe we have put in the lows in the market. However, we should expect a 10 to 20% retracement to begin at any time. As stated in previous comments, we should have an significant upside and the opportunity for above-average profits in the period that immediately follows the correction. Good investing.