A lot of happy people out there… or so it seems.  The green shoots have bloomed into amazing profits at banks and a 60%+ rally in the market from the dark lows.  I’ll admit I’ve been a happy camper as well closing in on a yearly return of 35%+  for the NHF portfolio with only 14 days that trades were made (long/short S&P) is unheard of… well at least for the last fifty years or so.  And then Santa Claus came to town to boot.  Imagine being invested/locked into a CD for the past year earning a measly 2-3% for the whole year!!  yikes.

But even with all of this euphoria surrounding the market you get a sense that there is a ghostly figure hanging around.  Why does it feel like history is repeating itself and we are setting up for failure?  Maybe its because:…

• TARP (Trouble Asset Relief Program) didn’t get rid of any troubled assets and the money is unaccounted for every time senators ask Ben Bernanke or any his gang.
• The banks that were “Too Big to Fail” are now BIGGER.. this was a problem that was supposed to be eliminated, but it has been enhanced with big banks taking over other big banks. (i.e. JP Morgan taking over WAMU)
• Unemployment is at record levels
• Mortgage Defaults are off the charts
• Liquidity is not happening in the marketplace as banks are hoarding
• The US is incurring astronomical amounts of debt at levels that no one ever thought would/could exist

Just some items that come to mind.  So with this thought of history repeating in my head I looked back at a post about the mortgage reset chart that we had and looked at that big double peak of resets.  I came up with a crazy idea of overlaying a chart of the  S&P 500 that spans over the same time period.  And since we are in the “eye of the storm” on the  resets I added a copy of the same S&P 500 chart and connected it to where we currently are.  Its probably a lot easier for you to look at the chart than for me to explain it, but it was pretty interesting.  And as a primer keep in mind that this is just a crazy idea with no basis other than the fact that the mortgage resets are happening in a distinct double peak pattern, which could mean a distinct double dip pattern for the stock market.  There are a bunch of caveats that go with this as well… that I will get into later.

Here are the headliners from the chart:

• The low on SPY of $52 (currently $112) would be hit around late 2011 early 2012
• Our current market will peak around July/Aug around $120
• Notice how Option Adjustable loans + Alt A loans blow away the subprime totals from the last few years.

You can click on the chart for a larger view.