ebear -- I think the only difference between what you expect and what I expect is that you seem to be expecting deflation. I expect masive amounts of inflation.

Inflation is coming, I have no doubt of that. We're still in the deflation part of this epic though, which will end when the last of the bad debts clears the market, which could be a few more years. We still have a commercial real estate crisis to get through, which I expect will rear it's ugly head any day now.

We both agree that the markets are over valued and need to readjust. The difference is that I do not asume the dollar will maintain its purchasing power longer term.

That's pretty much a given. Real inflation is over 10% if you use Shadowstat's figures, which IMO are far more reliable than anything the govt. puts out. You don't need Shadowstats to figure it out though... just ask my wife.

The market will most likely retrace all of its gains but not in constant dollar terms.

In fact I expect at some point the market will find a bottom and go sideways even as inflation continues to erode the purchasing power the stocks represent.

This is the most likely scenario, with Dow 4000 as a possible target, although 6000 may be more realistic, factoring in inflation. We'll just have to wait and see. I was more or less joking when I called 1000.

One must also remember that markets never travel in a straight line. A massive recovery rally of perhaps 40% can happen at any time before the next down leg begins.

Before we get any kind of sustainable rally the bank stocks have to bottom, and we don't seem to be anywhere close to that yet.

ebear