Big bears on the U.S. economy – myself included – remain negative on the prospects of a sustainable economic recovery. I continue to view this rally as an opportunity to sell risky assets like stocks, speculative bonds and several commodities, namely copper and oil.

Once the "sugar high" from government spending and other tax incentives expires in 2010, it's lights out for a highly leveraged economy that won't sustain consumption. The Bush tax cuts expire next year and the new Obama tax hikes – at exactly the wrong time in the economic cycle – will only aggravate a sluggish economic recovery.

Although economic data since June continues to paint a recovery now underway in the ISM and other leading indicators, the primary trend for the economy remains highly vulnerable to tepid domestic consumption, balance sheet reconstruction and frugality. The latter is something most Americans my generation have never even heard of; but there's no doubt most consumers are growing more cost-conscious and building their savings again after an historical episode of asset class destruction last year. 

Bear market rallies are highly convincing. This particular episode is unlike anything we've seen since the emergence of the credit crisis. The above table – which has appeared here several times since the onset of the financial crisis – depicts bear market rallies and declines in the 1930s. Thus far, the Dow has gained a cumulative 45% since March 9. The biggest bear market rally in the 1930s occurred after the stock market crashed in 1929 and lasted 22.1 weeks resulting in a cumulative 48% gain for the Dow. This rally has lasted 25 weeks.

I suspect this market will hold above the March 9 lows for the remainder of the year but will suffer a sharp 15% correction or worse before December.

Stocks will probably rebound once more because the market is blinded by inventory reduction, low inflation, super low interest rates and a decline in the jobless rate.

The economy is in much worse shape than these statistics indicate and, by the spring or summer of 2010, I expect the market to tank again – possibly taking out or testing the March 9 lows.

What will trigger the next big plunge in risky assets? I would guess it's an event that hasn't been discounted by the market – like commercial real estate loans or soaring bankruptcies. It'll probably be something out of left field. This might include a major corporate bankruptcy, a chain of defaults in the emerging markets or a sovereign currency devaluation in the euro-zone. Anything is possible.

One thing is for sure: whatever comes next in the form of bad news hasn't been reported in Bloomberg, The Financial Times or The Wall Street Journal. The markets need to be shocked into submission again. And the bear will do just that next year.

I'm off to Austria this weekend. I'll give you the inside views on Austrian markets on Tuesday.

Enjoy your Labour Day weekend.