Vinny Catalano

Of Fear and Financials

This is something that my three amigos seems to have missed - the full blown panic phase may not be upon us.

As I commented on back on May 12th ("The Economy is Spelled with a W"), an economic double dip in 2009 (most likely the second half) is my highest probability US economy call. That means that a stock market decline anticipating the double dip may not occur until we are in the new year.

If so, then the mini panic we are experiencing right now along with the fact that corporate earnings are still more than decent (aided by global growth, mostly from emerging markets) plus the valuation levels are more than reasonable (unless you believe in the Bad or Terrible scenarios I outlined last week - "The Looming Valuation Adjustment Process") might be the rationale for the high cash levels (including those at hedge funds) coupled with very negative investor sentiment readings to = a stock market that most likely surprise to the upside this fall.

If this occurs, then those sectors and industries that are exhibiting the best relative strength should lead the way up.

This is what a contrarian like me must do to buy low in the expectation of selling high.