The big 4th of July holiday weekend was coming up, followed by the start of  ’yearnings’ season’?

Yeah.

That was a lot of fun. Everybody had a whale of a time.

For well over a month now, it has been nothing but blue skies while machine-gunning short sellers with an entire division of dip-buying chimpanzees loaded up on mountains of ‘brown-brown’ to bid stocks higher. So far, most of the strongest companies have reported ‘better than expected’ but the theme seems to be missing on revenue and guiding lower. There is still lots of reports (especially by retail and cyclical names) coming out, but I think most of the market buzz is over with. All eyes will be on AAPL Tuesday to determine the fate of the Western world. Will AAPL continue to gap up higher towards $1000 or will it finally fall victim to the law of large numbers and take its place next to IBM, BA, GE and F as a mature and great Amercian value company?

In any case, I think it is clearly time for an honest, sober assessment of the situation.

It is magnificent news that the ‘technical picture’ is looking up in the markets, because quite frankly, I don’t think that the ‘fundamental picture’ could look much worse.

Arguably, news out of Europe that another continental, 15th century style,  plague outbreak would be better than what is likely coming in the weeks ahead. Risks of contagion and systemic defaults in Spain and Italy have never been higher, yet the VIX  traded down to 15 lows last week.

No money has come out of bonds. Don’t just look at TLT. Muni, high yield corporate, ‘Buy America’ virtually every bond fund chart is vertical. No matter how low the US credit rating is cut, how low the yield drops on the 10 year or how many towns in California file for bankruptcy, there is a seemingly never ending appetite for debt. 3 years since the 2009 lows, I can only guess that investors are terrified of getting ‘Chipotled’ in a wildly unpredictable stock market with narrowing leadership and slowing growth. Return OF capital is paramount to return ON capital.

There is massive headline risk headed into the coming months. Markets had a sublime moment over the past few weeks to enjoy the holiday and focus on earnings, but now items like ‘fiscal cliff’ and ‘uncertain presidential elections’ can come back into focus.  PMI will be out early in the week followed by Q2 GDP, these types of reports have the potential to be heavy on the market for the rest of the year.

The action in grains and commodities in general is insane. I don’t see how a dust bowl depression and lock limit up moves in corn is helpful to the US economy. Collapsing energy prices in recent weeks had provided a nice tailwind for the ‘resilient US consumer’ but have now retraced about 50% of that move since the start of the month with WTI back over $90 and gasoline just under $3. These price swings in commodities over the past three years are unheard of outside of war time. Perhaps we really are in the midst of some bizarre hyper-stagflationary, Mises crack up boom?

Now, none of this is meant to be a clarion call to bath in goats blood, plug in to the ZeroHedge RSS, and buy a bunch of geared up, Frankenstein derivatives like VXX call options. I will still be following the trend where ever it leads. It is just a notion that while the holiday and earnings may have temporarily distracted the market from all the bad news, there is still plenty of land mines out there and all the ‘good technicals’ that have been building over the last month can get completely washed out before the market even opens.

Stay safe.