The cracks are starting to form...wait for it...

The markets keep chugging along this week, after some initial worry that the rise may be over.

Not just yet...we've still got some optimism to dry up before the markets can start their drop. Another month, maybe a little more...but we're getting close.

July was a pretty bad month for the small banks. Up until now, we've seen banks going under because of residential real estate...but creeping in slowly but surely are commercial real estate loan defaults. Remember last fall when it seemed every bank was going to fold? We're probably going to be getting a taste of that this year.

It won't be as widespread or huge...because it's going to be the mom and pop banks that go under, not your giants. That's because the giants saw the writing on the wall a little earlier this time, and bailed from the commercial market. Not your huge projects like Trump's building...but your strip malls, liquor stores, resale shops...local business. Most of those local businesses got their building loan from a local bank. Big banks stopped lending to these markets, and aren't interested in derivatives for these either.

Most likely, Obama is going to take some action this fall to again support the banks. At least, he is going to pump some dough into the FDIC (because they're going to run out of money soon.) It's hard to get a read on him right now, but he may do something (along with the Treasury or Federal Reserve) like opening up a series of bad banks, to dump assets no one wants for a premium...then slowly selling those assets off to close the bank with a zero.

Like I said...it's hard to guess what Obama and co. plan to do, but rest assured they are going to take action. We can only pray it will be limited.

This is the news that will drive the market lower this fall.

The cracks for this are already forming, and are plain as day when you know where to look.

Check out PPI and CPI, both measures of the value of the dollar. Both were showing mild inflation through most of this year, but with July took a tumble towards deflation. Deflation, as I've said before, is bad for debtors...and that's most of us. When banks go under, money is destroyed. Not like dollar bills are being burnt, but fake money invented by banks being destroyed has the same effect as burning dollar blls.

July was a very bad month for banks...19 banks failed. Bank failures aren't really felt from a direct sense...everyone's money is replaced and immediately available, all assets are transferred so you just write your mortgage check to someone else next month. But the effects of a bunch of banks going under at once is felt in the value of your dollar.

We're probably going to feel a mini deflation again this fall. It'll be like last fall, oil and commodities will ease down, the stock markets will come down a little harder. Housing sales is going to slow down again (they're really doing well right now.)

That means get ready to take action...don't sit on your ass and watch your retirement shrink again, get ready for it.

Get ready to sell into safe stuff...money markets and bonds...and sit out the correction.

Don't sell just yet, as we've still got a little more climbing to do, but get a gameplan together. Figure out what's most overpriced in your portfolio, get ready to sell that first. Figure out what you're buying into, but anything that won't feel a market correction.

The fundamentals are starting to look a little worse, but the optimism is going to keep up a little longer. Just know that it's coming.

I'll keep posting until I think this is the top...then I'll try to call the top. We'll see how well I guess. Then, I'll try to call a bottom when you take the money sitting on the sidelines and cherry pick underpriced stocks and especially commodities.

...wait for it...