Well the markets have turned very dull. They say don’t short a dull market, but the fact is the main timing system I use is still short and, accordingly, so am I. It is the last day of the month and so the mutual fund crooks can be expected to manage the market today to optimize their compensation.

The drawdown is painful and will result in a poor month. An example of the risks of being aggressive, especially on the short side. I’ll post the portfolios tomorrow or Saturday, but the hatches are well battened down. Despite the bullishness in techs (which are mostly what I’m short), led by the semiconductors, the transports (DJTI) and financials (BKX) are weak, which is a bearish sign.

Yesterday the GDP numbers were revised upward for the second quarter, although that is ancient history at this point. However, Nouriel Roubini dissects the numbers in his blog and shows that they are less than they seem. The employment numbers are tomorrow, although they are very much a lagging indicator so I do not expect anything too interesting.

The ten-year Treasury yield index is down to 4.744% as I write. The bond market sure doesn’t see inflation ahead. But all the chatter I see is ignoring the bond market’s view. And of course the stock market in general doesn’t see the inverted yield curve as a problem.

There is a jam job going on in the homebuilders also. Oh yes, Bill Miller at Legg Mason is long the homebuilders and somehow his picks seem to enjoy miraculous recoveries at important junctures. Funny ’bout that.

The St Louis Fed offers the following chart, which shows an interesting situation. Profits are soaring, while payrolls are declining. Hmmm. Which will give?

Dallas Fed President Richard Fisher last week referred to economic pessimists as “Eeyores,” after Winnie the Pooh’s grumpy friend. Nouriel Roubini has been labelled the archetypical Eeyore for his recession prediction. I happily join the ranks of the Eeyores.

For the record, we were warned. A small selection of charts:First, an update of Robert Shiller’s housing price history, from earlier this year, published today in the New York Times. Click on the small chart for a full-size version.

With all due respect, does it seem likely that this will not result in an abrupt reversal now that (apparently) prices have stopped going up? In any event, we proceed to the next chart which is also real-estate related. It shows the NAHB housing index versus the S&P 500, lagged one year. The correlation is about 0.8, but you can just look at the chart to see that.

And now to the real kicker, which is employment. I’ve mentioned before that falling retail employment is a harbinger of recession and the following chart shows clearly why this is the case. Retail employment leads employment in general. Res ipsa loquitur.

By the way, the ECRI smoothed index fell again on Friday to -1.6%. No recession call yet from them, I guess Roubini was out first anyway so they won’t hurry.

H&R Block announced that it will need to set aside $61.3 million, or 19 cents a share, to protect against loan liabilities related to rising mortgage delinquencies at its Option One Mortgage unit. HRB also said it will need to boost its loan-liability cash reserves owing to recent increases in loan repurchases, “which have been noted industrywide.”

Subprime lender Fremont General repurchased and re-priced $238.4 million in home loans in the second quarter, up from $67.7 million in the year-ago quarter and $107.7 million in the first quarter of this year. The company said it had cut back on “certain higher loan-to-value products and lower FICO” loans during the second quarter to reduce early payment defaults and thereby loan repurchases from investors.

Due to a spike in the buybacks of loans previously sold to investors, NetBank added $13.2 million to its provision expense in the second quarter, which in turn ate into its mortgage gain-on-sale income.

These repurchases occur when loans that have been sold default during their “warranty” period - usually the first 30 to 90 days. One can imagine that either folks are being put into loans where they can’t even afford the first payment, or that speculators are just walking away from units that they just closed on. Either way, it paints a grim picture.