A French proverb states that a fault denied is committed twice. Denial does not serve as protection against the inevitable.

The simple truth is that the market is ripe for a major correction.

The Reality of Denial

From David Rosenberg : ” Our suspicions have been confirmed — the recession never ended.  Macroeconomic Advisers produces a monthly U.S. real GDP series and it shows that the peak was in April, as we expected, with both May and June down 0.4% in the worst back-to-back performance since the economy was crying Uncle! back in the depths of despair in September-October 2008.  The quarterly data show that Q2 stands at a +1.1% annual rate (so look for a steep downward revision for last quarter) and the “build in” for Q3 is -1.5% at an annual rate.  Depending on the data flow through the July-September period, it looks like we could see a -0.5% to -1% annualized pace for the current quarter.  Most economists have cuttheir forecasts but are still in a +2.5% to +3.5% range.  What is truly amazing is that despite all the fiscal, monetary, and bailout stimulus, the level of real economy activity, as per the M.A. monthly data, is still 2.5% below the prior peak.  To put this fact into context, the entire peak to trough contraction in the 2001 recession was 1.3%!  That is incredible.”

From John Hatsius : “  Second half GDP in US should be revised down to 1.5% ”

Don’t Worry About Falling Real Estate

The National Association of Home Builders reported that its monthly reading of builder’s sentiment about the housing market sank to 14, the lowest level since March 2009. Existing New home sales down 27 % YoY.

Don’t Worry About Foreclosures

According to RealtyTrac, more than 1 million American households are likely to lose their homes to foreclosure this year. This is about 10 times as high as during an average year. 25% of the U.S. household sector has a sub-600 FICO score.

Yet, Fannie Mae is offering financing to first-time buyers who only have a $1,000 down-payment. Nearly $150 billion have been spent to keep the doors of Fannie, Freddie and company open.

Don’t Worry About Bankrupt States

States are in trouble. The bigger the state, the bigger the trouble it seems. California has a $1.8 trillion economy. If CA was a country, its economy would be the seventh biggest in the world, bigger than Russia. But, CA has no money.

CNN reports that as many as 200,000 state workers in CA could see their pay scale slashed to minimum wage, if orders from the governor’s office are followed. You don’t need to be one of the 200,000 to know that is bad. To go from state salary to minimum wage is a huge drop.

Don’t Worry About Falling Prices

Look around and you see a general downtrend develop: U.S. stocks , international stocks and emerging market stocks. The same applies to commodities, real estate prices and consumer goods.

So, are we ready for the last shoe to drop finally ???