A year ago, Iran was being pressured by the UN and the Security Council to stop its nuke program.   As a sideshow distraction, trouble popped up in Lebanon - people died and the market struggled.  Now that a year has gone by and Iran is even closer to doing whatever they plan to do with the atom, we are right back to the same situation.  The UN is threatening to threaten again and … magic!! … Lebanon is once again dealing with terrorist groups.  Coincidence?  Maybe so.  On the other hand, it isn’t so tough to connect the dots.  And just to be fair, the US war games that started in the Persian Gulf over the past few days is probably not helping things.  For whatever reason, the Iran nuke issue heats up this time of year and along with it comes the risk to oil supply.  I was surprised to see the decline in oil today but if this Lebanon / Iran thing gets worse, it won’t head lower for long.

Tonight, the fight for Lebanon is raging and I expect it to get much worse. One year ago, Lebanon was the battlefield for Israel versus Hezbollah in the name of Iran and Syria. Today is not much different. Supposedly the Lebanese army is attacking Palestinian camps but it appears that those Palestinians aren’t your ordinary peace loving groups. Instead, they appear to be Fatah Muslims inspired by al-Qaida and masquerading as Palestinians. Sooner or later, I expect that this situation will degrade and they’ll find a way to drag Israel into it. Hopefully, Israel, the United States, Syria and Iran can stay out of this but that has not been the case for generations.

While my May Market Forces post indicated I expected higher rates, we are bumping up against the resistance levels set in January. Today’s housing data gave a push to rates but neither my previous forecast nor the new housing sales affects my belief that rates are going higher. That decision is based upon many other factors than the upward momentum in rates this month or one economic report. Specifically, I find minimal value in looking at the 16% jump from the previous month.

Springtime is usually strong for home sales and it’s tough to know how much of the 11% decline in prices affected this increase in unit sales. I don’t put much credence in the argument that April’s new home sales justifies an increase in rates and I also do not believe it means that the housing and mortgage crisis is over. Fortunately, these things are much too complex and require a lot more data over multiple months. The average and trend is much more important and right now, that is still showing a weakness in housing. It’s tough to catch a falling house and I don’t advocate trying to do it.

I don’t believe in “I Told You So’s” and gloating is a part of that theory. If you want to see where I stand on anything, just read backwards through this blog or search for a date or topic and you’ll be able to figure out what I said.

This market has been struggling for weeks in my opinion and despite my commentary, I believe I have failed to convince anyone who didn’t already agree with me. Today’s selloff is consistent with the negativity that I have been seeing for the past month since the HEDGEfolios Timing Indicator gave a bearish crossover on April 30th.

For the past three days, I have gone on record to question the action that looked like a three-humped camel. When the market surged this morning on the housing data, I cringed. Not because I thought it was spiking against me, but because I feared the people who were buying would regret it. I have a tremendous amount of conviction towards the downside and on days when we head higher, I hurt. I hate being wrong. When something like today’s reversal comes along, I don’t feel any better.

Just know that there is no evidence that today’s action is an end to anything. When we sold off on February 27th, the downward slope was unsustainable. I have said “Stocks are Like People and People are Like Stocks” and part of that means that stocks will not go down until investors lose playing the same game. Until now, buying dips has been a winning strategy. When this decline stops, it will likely be due to investors who have benefitted from buying the selloffs. Until that strategy fails, it will be tried again. It has not failed for a while.

A picture is worth a thousands words they say. So I’ll just keep my words to a minimum. Several smarties have suggested how you can use this Durable Goods data for making investing decisions. If you can honestly say that after looking at this chart you have any idea how to adjust your portfolio management from month to month, you are way better than me. I see wild swings at the extremes and the rest of the data being way too close to the break even level to show me any clear indication of direction.

The similarities between Glaxo’s Avandia problem and Vioxx are numerous. Here’s a few:

• Same whistleblowing researcher - Dr. Steve Nissen of the Cleveland Clinic
• Same claim - increased heart attack risk
• Same year of FDA approval - both drugs approved in 1999
• Same revenue levels - both were near $3 billion sellers prior to Nissen’s claims

Unfortunately, the most concerning commonalities relate to the possibility that both companies either misrepresented or disregarded the health risks for years in exchange for racking up billions. Here’s a good summary from Bloomberg. I hear Glaxo coming out to defend their product and their actions and it’s all too familiar. Here’s what Glaxo’s CEO said “We expect that once the complete data set on Avandia becomes available, our product will be vindicated.” That reminds me of some comments that former Merck CEO Gilmartin put out there prior to finally pulling the plug on Vioxx.

I can understand that GSK may want to continue selling Avandia, but it seems to me they need to let the safety data speak for itself. Merck’s legal troubles were only enhanced by the perception that sales came before safety.  I fear that Glaxo is going down this road and while I am sure it makes the trial lawyers happy, investors should not be too excited.

Deja vu - the market declines and it is so convenient to blame former Fed Chairman Greenspan. Personally, I find that to be ridiculous but if you need to find an excuse for the third consecutive day of afternoon selloffs - go ahead. But let’s get real. Did investors not know that China’s stock market was risky and the bull run was likely to be unsustainable? Last week, China’s largest investor and one of the world’s wealthiest individuals made similar comments so I find nothing remarkable about the Maestro’s rumblings. Like I said, if you need Li Ka-shing or Alan Greenspan to tell you that Chinese stocks pose a threat to US and world markets, then you should rethink your involvement with investments.

The NYSE says “Program trading encompasses a wide range of portfolio-trading strategies involving the purchase or sale of a basket of at least 15 stocks with a total value of $1 million or more.” Obviously, the “or more” language is an understatement. Click on this link to the NYSE statistics and you’ll see that program trading represents about 30% of NYSE volume “or more” and the total for all the exchanges is roughly 60%. For something that is such a huge impact on the market, Program Trading is largely a mystery. Sure, you can hear rumors about big buy or sell orders when everyone is scrambling to explain why the market surged higher or took an unexpected dive. But all that is after the fact and functionally useless for traders and investors. The only research on this topic that I value is from HL Camp and you can find it at www.programtrading.com. Note that this data is not meant for every investor and yet, the impact of program trading affects all of us.  Make sure you read their disclaimer and realize that like all investing, relying on program trade data is not a risk free endeavor.

The bulls will tell you it isn’t smart to be a worrywart.  But they simultaneously love to hype the concept that everyone who does worry or is a skeptic is just fantastic for the market.  Builds the wall of worry they say.   The way they present things you might believe that all worry is irrational and wrong.  Is it?  From November to February I kept worrying and wasn’t hiding it in my commentary.  I was told that I was irrational and wrong.  Now this kind of commentary is once again ringing in my ears and it’s time to be objective.  Ask yourself whether all worry is wrong.  Should a bull be worried about a little red cape?  Should you be worried when your car gets stuck on a railroad track?  Some fears are irrational.  Some doubt is unwarranted.  But this idea that all worry about the market is wrong and irrational is not as healthy as the bulls want you to believe.

Today, Dylan Ratigan of CNBC claimed that all the smartest guys in the business are bullish and buying stocks. As evidence he mentioned Warren Buffett and of course Private Equity. Somehow this comment is supposed to assure you that all is well and it would be reasonable to infer that if you buy stocks, then you are smart too. How wonderful. You can improve your IQ and be just like Warren by the simple act of buying stocks. Of course, Warren is smart and so is “Mr. Private Equity.” But comments like Dylan’s are not smart. I am bearish and you can decide whether I am not smart. When I think of the people selling today, I don’t presume anything about their investing intelligence. Many people were buying stocks prior to February 27th and yet, I don’t think they felt too smart a few days later. Many of these comments were thrown around in 1999 and early 2000. You were stupid to be afraid and not buying stocks back then too. But not so stupid a few months later.