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"Artificially Sweetened" Market Could Face "Seismic Readjustment," Harrison Says

Posted Aug 26, 2009 02:16pm EDT by Aaron Task in Investing, Recession
Related: ^DJI, ^GSPC, SPY, DIA, TBT, QQQQ, GLD
After the heady rally off the March lows, Todd Harrison, CEO of Minyanville.com, now believes the risk-reward favors shorting the market vs. being long.

"This is a Splenda market - because there's so much artificial sweetener involved," Harrison says.

After making bullish calls here in February (albeit early) and again late April, he's more lately shorting the Powershares QQQ with a tight 2% stop. "That's all I'm willing to lose on this bet," he says.

Technically, the Nasdaq is currently at a major convergence of the downtrend line from its 2007 peak, long-term resistance at around 2000, and a 50% retracement of decline from the October 2007 highs to the March lows, Harrison says. That setup could result in at least a temporary setback for related stocks.

Longer-term, his concerns center around the novel idea that there's going to be a price to pay for all the government stimuli that have resuscitated the U.S. economy and given a major jolt to both the equity and credit markets.

"The government is showing its hand and what they want to do: They want to transfer our obligations to our children, which will inherently lower the standard of living to our children," he says.

But even worse than the shocking $9 trillion deficit America faces over the next decade, Harrison worries that we don't control our own fate. "That transfer of risk to future generation is in the hands of foreign holders of dollar-denominated assets," he says. "A seismic currency readjustment is a legitimate risk."

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