Thursday's payroll report led to some of the worst market angst we have seen since the big rally started, with the market plunging into its third consecutive weekly decline.  While the numbers didn't strike me as anything really that different from "more of the same", neither did the previous few that seemed to encourage some market participants.  I was pretty lucky to be a bear who was aware - aware that the market was quite overdone in March (and February too!).  For those who follow my views, I had expected an interim low in the market in the March/April time-frame, but at slightly higher levels that we ultimately reached.  Then again, the market stretched further to the upside than I expected when I  projected more a big rally in mid-March after having "Sponge-Bob" called the low in early March as one of the first to note the irony of the "666" low .  When looking at the markets, it's very important to remember that stocks are much more volatile than the economy:

See what I mean?  Over the past 62 years, stocks have increased a few points more than the nominal economy on an annualized basis, but the annual returns have been +/- 5-6X the median GDP growth at the extremes.  So, it doesn't seem that implausible that the stock market has round-tripped an almost 25% move as the market incorporated slowing sequential GDP decline.

We are half through the year following the worst stock markets in most of our lives.  I am sticking to my forecast that we end the year down.  My original forecast suggested that we would rally in Q2 (which we clearly did), but make a new low in Q3 before experiencing a strong Q4.  At this point, I am not that sure that the March low doesn't hold, but I do expect a move to at least 800 on the S&P 500 and wouldn't rule out significantly more damage.  Before reviewing where we are in the big picture as far as correcting the major economic imbalances as I have described for quite some time, I want to take a very long-term look at the employment situation.  I am not in the "V" but in the "L" camp.  I think that Obama's responses and the actions of the Fed could very well avert Great Depression II, but our best case is to see the economy growing by the next election in 2012.  Deleveraging has to happen, and it will take some time.