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Although retail sales and sector share prices have rallied back to the all-time highs they hit in 2007, retail property prices remain depressed. As the chart below shows, this unusual divergence has grown significantly since the latter half of 2008.

There are any number of possible reasons for the widening disparity. Among them:

1. Better-than-industry-average sales growth at small and nontraditional online retailers, which has bolstered overall sales without creating a concomitant need for additional stores and malls. For the most part, large online retailers like Amazon (AMZN) and well-known bricks-and-mortar chains with significant online presence like Best Buy (BBY) are included in the retailing index.
2. Consolidation in the sector. A shrinking number of large firms have garnered a rising share of overall consumer spending without having to add to their existing selling space. The empty facilities of failed competitors, meanwhile, have boosted overall supply, thereby depressing prices.
3. Shifting consumption patterns. People are paying more for essentials like food and fuel, and less for myriad goods sold at other outlets, including department stores, big-box retailers and national chains that might otherwise be expanding and soaking up commercial real estate that is on offer.
4. The impact of federal government action. Bailouts, stimulus programs and Federal Reserve easy-money policies have bolstered stock prices and boosted high-end consumption via the wealth affect.

One could argue that these developments aren't necessarily bullish for the share prices of the retail firms that have been at the forefront up until recently. For one thing, if online up-and-comers are growing fast, logic suggests they're gaining market share at large firms' expense. With employment and technological trends likely to draw a growing number of competitors into the online marketplace, the largest, least-nimble firms will find it hard to keep pace.

Moreover, while industry rationalization and consolidation will almost certainly continue, several years of essentially flat real (inflation-adjusted) sales growth suggest that the low-hanging fruit has probably been picked. Best Buy, for instance, has benefited from the failure of Circuit City, but how many other large, category-specific competitors does it have now? Walmart (WMT) is probably its primary rival nowadays.

And if essentials like fuel and food are accounting for a larger share of overall consumer spending, can that really be seen as a sign of a retail resurgence? People may be opening their wallets a bit wider, but it's not because they're more confident about the future. It's because they have no real choice.

Finally, while the Federal Reserve's latest round of quantitative easing -- QE2 -- and other such efforts have undoubtedly propped up share prices and afforded the wealthy more spending power, the average American hasn't really benefited as much. At the same time, the political winds are shifting in favor of greater fiscal prudence and a constrained Fed. Retailers at the top of the food chain will invariably suffer as a result.

In sum, the chart above doesn't just help explain how things got to where they are. In my view, it also offers some insights about where they're headed next. Among other things, it suggests that while bigger has been better these past few years as far as retailing is concerned, a reversal of fortunes is likely at hand. Smaller retailers, most of which won't be publicly listed, stand to benefit in a world where the ability to adapt quickly to changing economic, social and technological circumstances offers a critical advantage.

With that in mind, one can only conclude that the share prices of the larger operators will suffer as a result.

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A recently updated Federal Reserve staff working paper, "The Housing Crisis and State and Local Government Tax Revenue: Five Channels," notes that property tax collections "have been surprisingly resilient" during the financial crisis and downturn. That's in sharp contrast to the steep drops seen in other municipal revenue streams, as shown in the following chart from their study:



According to authors Byron Lutz, Raven Molloy and Hui Shan, the strength in property tax collections in comparison to those from other sources, including income and sales taxes, stems from "the long lag between changes in the market value of property and changes in taxable assessments and the tendency of policy makers to insulate revenues from housing price declines by raising tax rates."

"This propensity," they conclude, "makes it unlikely that property tax revenues will fall sharply in coming years."

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The expansion of bank credit before the peak was similar in both countries. Furthermore, Sweden's boom, like ours, resulted in rocketing real estate prices and overleveraged consumers.

When the bubble burst, both countries experienced similarly awful contractions. Gross domestic product declined 5.1 percent in Sweden at the trough, compared with 4.1 percent in the United States.

Mr. Shepherdson hopes that the Swedish experience on the upside also repeats itself in the United States. After Sweden's output bottomed out in early 1993, the country began an upswing that soon became supercharged. The initial growth was at an annualized rate of 2.5 percent, but by the second year of the rebound, G.D.P. growth was 5.3 percent, annualized.

We may not end up with a recovery that hot, Mr. Shepherdson said. But if the credit expansion he is expecting does transpire, he said, we could achieve annualized growth of between 3 percent and 4 percent in the second half of 2011. And the year after that looks even more promising, he said, because "credit conditions will be back to something like normal."

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Since the March 2009 lows, large-cap technology shares have been among the market's best performers. Propelled by heavily weighted Apple (AAPL), among others, the Nasdaq 100 ($NDX) has doubled over the past year-and-a-half, and it has tacked on nearly 20% during the past six weeks alone. That has pushed the index to near three-year highs.

The obvious question, of course, is what happens next? Will the recent momentum feed on itself, or has this breathtaking bull run set the stage for a correction of some sort? While nobody knows for sure, a number of technical and sentiment indicators are suggesting now is the time for caution.

First, as the following chart shows, the NDX has entered a band of strong resistance marked by the 2007 highs. At the same time, the index is now in "overbought" territory -- as evidenced by the latest readings on 14-day Relative Strength Index (RSI), a measure of price momentum. And the NDX is tracing out a potential negative divergence, where price and momentum are temporarily out of sync.

Based on recent data from the Commodity Futures Trading Commission, commercial traders (i.e., defined by the CFTC as those who manage their business risks by hedging in futures and options) now have their biggest net-short position in NASDAQ-100 futures in recent memory.

As the following chart (courtesy of SentimenTrader) shows, the "smart money's" track record when it comes to identifying tradeable short-term trend reversals is not too shabby.

Combine that with the fact that many hedge funds have major exposure to technology darlings like Google, Microsoft, and Apple - according to Goldman Sachs, the latter is a top 10 holding of 75 funds - and one could argue that you have the makings for a nice little rout.

As a long-time market-watcher and died-in-the-wool contrarian, I can't help but think that a newsletter targeted to investors in one popular and high-flying technology company, marketed in a post-cum-advertisement at the Business Insider ... can be seen as anything other than a sign of a top -- for the stock, the technology sector, or even the market as a whole.

"Sign Up Now To Get The Apple Investor Newsletter"

Calling all AAPL enthusiasts... Sign up now to receive the Apple Investor newsletter.

What is it? The Apple Investor offers a compilation of important news and trends affecting Apple, along with our own analysis and commentary. You'll receive this newsletter straight to your inbox every Monday, Wednesday and Friday.

Signing up is quick and easy. Use the form below to enter your information then click the "Sign Up" button.

Still, the fact that technical and sentiment indicators are flashing red after prices have had an exceptionally strong run doesn't necessarily mean that the large-cap technology sector won't continue to shine. Indeed, it's possible that momentum alone might allow the rally to continue for some time to come.

But for those who believe that history has a way of repeating itself, it's probably time to adopt a more conservative stance.

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Aided by a number of developments, the Swiss franc has been the second-best performing major currency over the past six months, reports Bloomberg. Since March 29, the currency has outpaced the dollar and the euro by 8.9% and 7.8%, respectively.

First, growing fears about the risk of default by some European nations and the negative impact that could have on the eurozone economy -- and its common currency -- sent many investors scurrying to invest in what has long been seen as Europe's safe haven currency.

The Swiss franc has also been bolstered by the purchases of those who fear that renewed weakness in the U.S. economy and the likelihood of more monetary accommodation by the Federal Reserve will eventually lead to inflation that will drive down the value of the dollar.

Moreover, efforts by Eastern European governments to unwind low-interest franc-denominated mortgages taken on by citizens in those countries -- which have suddenly become more costly in local currency terms -- are exacerbating the squeeze, according to Bloomberg.

The Smart Money Is Betting Against the Franc

The key question, of course, is will the trend continue? While there's no guarantee that the franc won't keep strengthening, various technical and sentiment indicators, as well as some fundamental developments, suggest the Swiss currency is due for at least a short-term correction.

To begin with, the franc is at a level relative to the dollar that has been a major barrier to further strength in the Swiss currency. At the same time, the F/X rate and the trend of its 14-day RSI (Relative Strength Index), a measure of momentum, are diverging somewhat, a development that has often marked short- and medium-term turning points.




In addition, the smart money is making sizable bets against the Swiss currency. Based on data from the U.S. Commodity Futures Trading Commission, commercial traders -- defined by the CFTC as those firms that are engaged in business activities hedged by the use of the futures or option markets -- have their biggest short positions in the franc since December 2009, notes DailyFX.

Bullish sentiment towards the franc has also reached contrarian extremes. According to market blog Trader's Narrative, the Daily Sentiment Index reading for the Swiss unit has reached 95% (out of 100%), while a recent Financial Times report, Resurgent Swiss Franc Seems Unstoppable, was notable for its paucity of bearish perspectives.

To top it off, fundamental conditions are not as supportive as some might believe. In recent weeks, the Swiss National Bank has softened its previously hawkish stance (over inflation concerns), while the strength seen in the currency so far will likely weigh on the nation's exports, undermining growth overall and, ultimately, demand for the Swiss currency.

Right now, the Swiss franc might seem like the one investment you can't do without: That's often the time when savvy investors start thinking otherwise.

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Recent reports suggest that the global recovery is faltering, raising concerns that we may soon see a replay of the sovereign debt crisis that rocked Europe -- and, eventually, the U.S. and the rest of the world -- earlier this year.

One driver for the upheaval that erupted last spring was the growing concern that countries in the region that had mismanaged their finances, most notably the "PIIGS" -- Portugal, Ireland, Italy, Greece, and Spain -- might feel compelled by deteriorating circumstances to restructure their debts, or renege on them altogether.

Those fears eventually spawned broader worries about the fiscal health of other nations in the eurozone, as well as banks with large holdings of PIIGS-related debt, and even the viability of the euro itself. Subsequent efforts to rebuild confidence, including government-sponsored bank "stress tests" and large injections of central bank liquidity, helped calm things down.

Now, though, economic data from the U.S. and China is pointing to a potential reversal of fortunes, and experts like Nobel Prize-winning economist Joseph Stiglitz are warning that Europe is at risk of falling into a double-dip recession. Together with rising public resistance to government austerity measures, the pressures could leave financially stretched nations in the region with nowhere to turn.

In fact, a quick read of recent trends in European credit and equity markets suggests that investors are beginning to anticipate another round of upheaval along the lines of what took place only a few short months ago.

This first chart, for example, shows that the value of credit default swaps -- which, loosely speaking, are a form of insurance against a debt default -- on the sovereign obligations of the various PIIGS has climbed sharply, and is above or near the extremes reached back in May.



Another chart reveals that the differences between the yields of bonds issued by those five European countries and that of Germany, widely viewed as having one of the best credits in the region, have also jumped, a clear sign that financial stress is increasing.




And finally, this last chart shows that Portuguese, Irish, Italian, Greek, and Spanish share prices have also come under pressure in recent weeks. Of course, stock markets elsewhere have not fared all that well either, but the weakness being seen here comes on top of the dramatic slides that these markets have experienced since the start of the global financial crisis in 2007.



In the end, of course, round two of the European sovereign debt crisis may well remain confined to the region. Better still, our markets could benefit from the perception that the U.S. remains a safe haven despite everything that has happened during the past few years. But if recent history is any guide, odds are that it won't be long before serious troubles over there start to cause big problems over here.

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The latest readings on statistics published this week by the Federal Reserve suggest that the outlook for the U.S. economy remains bright. However, if you compare them side-by-side, the two series paint a picture that is seemingly at odds with conventional interpretations.

More specifically, the year-on-year trend of industrial production -- a gauge of the nation's output of computers, appliances, automobiles, and industrial machinery -- has rebounded from its 2009 lows at a far faster pace than capacity utilization, which measures how much of America's productive capacity is being put to good use.



Is this significant? Well, the last two times we saw disparities as large as we have now was in the spring of 1976 and in late-1983. As the following chart suggests, both occasions marked an interim peak in the year-on-year trend of real (inflation-adjusted) gross domestic product.

To be sure, the apparent relationship between these statistics may be no more than a coincidence, and the number of relevant data points is very small.

That said, the argument makes sense on an intuitive basis. If the overall amount of slack in the economy remains fairly large, as other evidence suggests is the case, then excess capacity will act as a drag on growth at the first signs of upward momentum. Businesses that had "mothballed" facilities during the downturn, for instance, might bring them back on line to capitalize on improving conditions. The net result would be increased production but limited economic growth.

In many respects, the situation is akin to the current housing market, where any nascent recovery is likely to be stopped dead in its tracks because higher prices and increased turnover will lure large amounts of "shadow inventory" back into the marketplace.

Under the circumstances, today's cheery market reaction to ostensibly stong economic data might be somewhat unwarranted.

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Two statistics released on Friday highlight the growing disconnect between what the average man (or woman) on the street is seeing and what the economic data appear to be telling us.

On the one hand, those who believe the economy is on the road to recovery -- albeit more slowly than many would hope -- will point to the latest data on consumer spending as a sign that things are still on track. While adjusted retail sales rose a slightly lower-than-expected 0.4% last month, the year-on-year gain was a healthy 5.5%, the ninth straight monthly increase.

Pessimists, meanwhile, might note that the most recent report on consumer sentiment from the University of Michigan revealed that Americans remain concerned about the economic future. The headline index for July rose to 69.6, beating estimates. But that measure is below the 76.4 level seen in November 2007, just before the recession began, and more than 20% below its long-term median.

In fact, if you compare the two series going all the way back to when the Census Bureau first started reporting monthly retail sales, the recent divergence is striking.



The obvious question, of course, is: Which data give us a better sense of what's happening with the economy. Are consumer sentiment surveys like this one and others, including the polls published by the Conference Board and Gallup, painting an unrealistically dire picture of where things stand? Or are the "official" statistics on consumer spending giving us an artificially inflated reading on the consumer's pulse?

Given all the other evidence we've seen lately, including last week's dismal jobs data -- not to mention the fact that ordinary Americans have been ahead of the curve as far as the economy is concerned since before the financial crisis started -- one has to assume that it won't be long before we'll soon be seeing a different sort of pattern emerge in some of the official statistics.

Watch out below?

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Investors cheered Monday's report from the Institute for Supply Management (ISM) that its U.S. manufacturing index fell in July to a better-than-expected 55.5. It was the 12th straight reading above 50, which indicates that the sector is growing.

However, there's more to the economy than manufacturing alone. According to Bureau of Economic Analysis data, manufacturing accounts for around 11% of U.S. gross domestic product (GDP), while the service sector is responsible for more than 80%.

In fact, an analysis of the relationship between the ISM's twin gauges of manufacturing and services-related activity suggests that the outlook may not be as rosy as many believe.

Based on past history, whenever the manufacturing-services ratio (MSR) has spiked above 1.01 or so and then shifted into reverse -- as it has done recently -- it has preceded a notable downturn in the year-on-year rate of change of real (inflation-adjusted) GDP by one to six months.

Admittedly, the history of this particular relationship is relatively short (the ISM's services gauge came into existence only in 1997), and as is generally the case with trends that appear to be linked, correlation does not necessarily imply causation.

Regardless, the less-than-upbeat message of the MSR -- which, as it happens, peaked in January -- dovetails with other recent data on employment, housing and consumer spending that suggest the already-sluggish U.S. economic recovery is faltering.

Another reason, perhaps, for investors to think twice before getting too bulled up about the near-term outlook.

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Earlier this year, European bank stocks were slammed on fears that Greece and other highly ndebted neighbors might not be able to pay their debts, leading to large losses that could destabilize the financial system and undermine growth in the region.

The European sovereign debt crisis eventually sent jitters through markets worldwide, including those in the U.S.

In an effort to restore confidence, the European Union on May 12 announced plans to "stress test" its banking system to assess its ability to "withstand renewed economic weakness and bankruptcies in the household, corporate and sovereign sectors."

Although the move was seen as a positive step, especially in light of the success of an earlier but similar effort in the U.S., bank investors were wary about the issues that might come to light. Over the course of the next four weeks, the European bank sector underperformed the benchmark STOXX Europe 600 index by 7%.

Since then, however, European bank shares have recovered all of the ground they lost -- and more -- relative to the broad market. This suggests that whatever concerns investors had previously have all but disappeared. With the European Union set to announce the test results on Friday, how should we interpret this?

On the one hand, with things more-or-less back to where they were when the initiative was announced, it could be taken as a sign that whatever facts come to light are already "priced in" -- a nonevent. In contrast, the "newsless" rebound we've seen in European bank stocks in recent months may well mean that investors have grown complacent about the headwinds facing the sector, many of which will prove daunting over the longer term.



In short, it seems a good bet that Friday's stress test news will either be neutral or negative for European bank stocks, indicating that the risk is to the downside (in relative terms, at least). Given what occurred the last time this sector came undone, U.S. investors would be well advised to pay close attention to events on the other side of the pond.

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Should it matter to U.S. investors that Middle East stock markets are among the worst-performers this year, with many trading at or near 52-week lows?

On the face of it, the answer would seem to be no. While a growing number of Americans are diversifying into foreign equities, funds have generally been directed toward the developed economies of Europe and Asia, or the larger, more advanced emerging markets like Brazil, Russia, India and China (the "BRIC" countries).

Still, while the performance of share markets in the Mideast might not be directly relevant to most Americans, I wonder if the recent trend should be viewed in some broader context. That is, are those markets, as a group, anticipating developments that might have more far-reaching implications?

If so, what might they be? While it's hard to say for sure, possibilities include:

• Financial. Upheaval along the lines of what we saw last fall, when the Dubai financial crisis erupted.
• Economic. Continued weakness in oil (and other commodity) prices.
• Political. Instability resulting from a looming regime change in Egypt (long-time leader Hosni Mubarak is 82-years-old and has had to contend with various medical issues).
• Geopolitical. Conflict stemming from increasing Israeli-Gaza tensions, Israel's repeated threats to destroy Iranian nuclear capabilities and efforts by the U.S. and others to impose sanctions on Iran.

Whatever the case, the fact that investors are heading for the exits in a traditionally unstable, but strategically important region of the world is a development that bears watching.

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As the accompanying graph shows, rising bond yields have historically been associated with lagging sector performance. One reason why many lenders tend to do poorly in such an environment is because they have traditionally made money by "borrowing short and lending long." Simply put, that means their funding costs tend to rise faster than the income they receive on mortgages and other loans. Many also have large bond portfolios that generally lose value in a rising interest rate environment.

Finally, it's worth pointing out that bank shares have been star performers since the year began, with the S&P Banks Index up by 18%, or more than three times as much as the S&P 500 Index. More impressive still, the bank sector has jumped by 172% since the lows of last March, or twice as much as the market. With a number of sentiment and technical indicators flashing caution signals, and with the quarter quickly coming to an end, that could be the trigger for a bout of profit-taking -- or worse -- especially in those shares that have performed best.

In sum, while the rally in the shares has been a boon for banking-sector investors over the past year or so, it seems that the time is right to take some chips off the table.

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Since January of 2009, the individual and institutional response trends have diverged to the point where the gap between the two is as wide as it's been since 1999 (when Yale started consistently tracking responses from both groups of investors).

More unusual, still, is the fact that individual sentiment has been declining while institutions have remained relatively upbeat. As the chart shows, the last two times a gulf like the current one opened up was in mid-to-late-2006, when sentiment among the big boys and the little guys was falling, and in mid-2001, when individual sentiment held steady as institutional attitudes improved.

Admittedly, I haven't been able to uncover any obvious differences in the individual and institutional response trends detailed in the other three indexes. Moreover, the time frame involved is rather short, which some statisticians might take issue with. Nonetheless, the Buy-On-Dips Confidence Index divergence may go some small way toward undercutting the popular belief that the stock market won't -- or can't -- reach a peak until the little guy rushes in.

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A more relevant measurement may be how quickly prices rise and fall. In fact, a comparison of past oil price swings and changes in U.S. real (i.e., inflation-adjusted) gross domestic product reveals an interesting relationship.

As the following chart illustrates, if you overlay the inverse of the 12-month rate-of-change in oil prices, shifted forward by 18 months, on the year-over-year trend in real gross domestic product, the two graphs loosely track one another.

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