Stocks climbed the proverbial “wall of worry” last week, with the S&P 500 Index climbing 2.2%. Everyone is waiting for the big pullback to happen. Funny thing about the market - it doesn’t do what we expect it to do. See Mebane Faber’s blog: “Sitting, Waiting.”

Despite the 54% rise in the S&P 500 Index since its March 2009 lows, the index still needs to rise another 53.6% just to get back to the lofty, pre-crash levels of October 2007. What are the chances of that happening?

Is the 5-month long stock market rally over? Should we prepare ourselves for a rough ride downhill? After a 50% run-up since March, the market appears to be sputtering. Why aren’t those consumers, who drive two-thirds of the economy, consuming more? For one thing, it’s hard to consume more when you’re unemployed. Consider that the “official” U.S. unemployment rate stands at 9.4% while the ”real” unemployment rate, which includes unemployed people who have not looked for work in the past month because they got discouraged and gave up, is in the range of 16-17%. Meanwhile, more than 550,000 new people per week are filing unemployment claims. Moreover, as housing prices continue downward, over-extended and highly leveraged homeowners have little or no home equity to tap. But politicians are trying their best to encourage even more consumer borrowing and spending with programs like “Cash for Clunkers” and homebuyer incentives.

Meanwhile, prices are rising (even though official government data says they are falling) and hitting consumers in the pocketbook. For example, since bottomming out in December 2008, gasoline prices have risen an average of $1.00 per gallon nationwide — up more than 60 percent! Utilities are jacking up their rates. My electric utility recently announced a 23 percent rate increase. State and municipal governments are raising taxes to cover huge budget deficits. For example. California enacted a $12.5 billion tax hike to cover part of their $40 billion deficit. It’s no wonder that Friday’s Reuters/University of Michigan consumer sentiment index registered a decline for the second month in a row.

Market analysts are sounding alarm bells that the market is ripe for a big tumble. The S&P 500 Index has rocketed 51.5% since it bottommed out in March and they say it’s too much, too fast.

What’s driving the market higher? One interesting factoid: 70% of all market volume is generated by robot computers running automated High Frequency Trading Programs. Guess who controls them? Big investment banking houses like Goldman Sachs (who controls 21% of all High Frequency Trading). The HFTPs are skimming a quarter to a half penny per share at a time and making billions and billions doing it! Read the article Five Reasons the Market Could Crash This Fall.

As we have seen since October 2007, buy-and-hold is not going to cut it. If you are within 10 years of retiring, portfolio drawdowns are just too risky with a buy-and-hold approach. Too many retirees who lost a big chunk of their net worth are out there trying to find work in the midst of the worst recession since the great depression. And just wait until inflation hits us - it won’t be pretty. Find out why the Chinese are highly concerned about U.S. inflation and why Treasury Bonds went in the tank last week.

So, you ask, what am I supposed to do? OK - here comes the shameless plug: Think long term. Start by geting your portfolio in sync with a service that maneuvered its subscribers through the market mayhem of the last 2 years without getting killed.

Have a great week!