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Investors Face Tipping Point After Wall Street Rallies 4%


Fans of the New York Mets are all too familiar with the slogan "Ya gotta believe." No matter how long the odds, or how dire a situation appears, the thinking goes that if you keep the faith an amazing win is always possible.

Today it's a big win for the bulls as stocks came roaring back. The Dow Jones Industrial Average rose 3.9% to 11,143, the S&P 500 rose 4.6% to 1,173, and the Nasdaq rose 4.7% to 2,493.

Despite the huge gains, investors are at tipping point, facing a major test of confidence on whether they believe in today's rally or not.  Money manager Harry Rady tells Breakout he's not buying this rally and "things could get worse...a lot worse. As we saw in 2008 things can go a lot lower then people expect."

How much lower?

"Down 40% wouldn't be unexpected," Rady says, explaining that the market might even have to overshoot that mark to truly draw investors back in. "In 2008 and 2009 I believe we lost a whole generation of investors, and those that we didn't lose, just got slaughtered again. So I think it's go to be tough sledding ahead."

For a man who says to "expect the unexpected" it may seem logical that he has no faith whatsoever that government leaders at home and abroad will be able to fix a mess of their own making. "It's terrifying that we have to rely on the Europeans getting it right," Rady says. And he's also not willing to rely on our own politicians getting it right and resolving our near-term slowing economy and long-term deficit growth.

Given the volatile environment, Rady is investing in ''price inefficiencies," even though he believes we are in a recession. "I don't think there's any doubt about it. The market, the bond market, markets around the world are telling us that we are in a recession and that it's very likely to get worse."

That's because "the consumer is terrified" and has suffered irreparable harm. "It will be some time before investors have confidence to wade back in, if at all," says Rady.

Is he right? Is fear here to stay?

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