Now I hate to be the bearer of bad news, or should I say, reality, but we have to have some common sense in our investments these days.  Let’s look at some basic indicators that are important in deciphering exactly where we stand.  The good news is that if we anticipate such a bad move in the markets, a trader can capitalize on the drop just as much as he would have if the market was to show bullish signs and he was long.

Sales of new homes in the United States fell to all-time record low in July, as demand from consumers has dried up after tax breaks expired.  Sales dropped 12.4% to a seasonally adjuted annual rate of 276,000 in July.

Median sales prices fell 4.8% over the past year to $204,000. Average sales prices are down 13.2% over the same period to $235,300.

Another measurement of house prices, the Federal Housing Finance Agency's seasonally adjusted purchase-only house price index, rose 0.9% in the second quarter, the agency said Wednesday.

The new-homes report showed that sales fell in all four regions. Sales dropped 25.4% in the West to record low levels, and fell 13.9% in the Northeast, fell 8.3% in the Midwest and fell 8.7% in the South.

Unemployment rate 9.6% and no signs of slowing down with increase in unemployment claims from week to week.  With a long duration of a weak job market not only comes immediate ramifications, but long term negative effects.  If the labor market doesn’t strengthen we will see it spill over into more housing troubles, less consumer spending, and lower consumer confidence.  The cycle will continue for at least the next couple years until the wave finally passes.

I think we're not yet looking at double-dip as a base case scenario, but clearly the risk of entering into a period of very, very sluggish growth has risen.

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