Seven reasons the market is not going up any time soon.

By Michael Shulman is a contributor to OptionsZone.com.

#1 - The housing crisis isn't over.

The epicenter of everything -- the credit crisis, financial crisis, economic crisis and crisis of confidence -- is housing. Not just bad mortgages, but a continuing fall in housing prices -- already down 20% with another 15%-20% to go. Yup, it is not close to being over. Home sales continue to fall, inventories are equal to more than a year of sales, and the vast majority of new mortgages being applied for as interest rates fall are for refinancings.

#2 - The next mortgage tsunami.

Subprime mortgage defaults peaked and will slowly begin to slide during the next two years.

But don't get excited -- option ARMs and ALT-A mortgages are now beginning to rise at a very rapid rate. According to analysts I follow, notably Ivy Zelman, the next tsunami will be larger than the one we just went through. And the banks are not currently valuing these mortgages as if they will default at this rate.

#3 - Credit markets remain frozen.

Yes, you may hear that the corporate bond market is breathing again and the exotic "TED spread" -- the difference between T-Bill and LIBOR rates -- is shrinking, but no one is lending money to anyone and confidence is non-existent.

Recently the entire country of Spain (meaning Spanish national debt) was put on credit watch due to deteriorating economic conditions.

Remember, the Wall Street Crash of 1929 and the Great Depression (I am not forecasting either one, by the way) started at a medium-sized bank in Austria, not on Wall Street or in London.

Credit markets are not only frozen because we don't know what is on the banks' balance sheets; they are also frozen because banks are repairing their own balance sheets by hoarding capital.

#4 - The banks are falling apart.

The banks are a wreck and now the pieces are beginning to fly apart, with Citigroup (NYSE: C) struggling the most and beginning to dismember itself.

Meredith Whitney, the uber-analyst who has been right about everything in banking for more than two years, said there were $2.4 trillion in asset downgrades at the end of last year by the credit agencies. This will really whack the banks' critical Tier 1 capital.


And even if you forget earnings problems, the banks will continue to have no money to lend, which will strangle businesses and the economy.

#5 - The consumer has stopped spending.

The consumer spending component of the economy was 70% of GDP, but it is shrinking fast and it will not come back to former levels for a long time -- maybe ever.

Unemployment and fear of unemployment are killing spending. I believe we will see double-digit unemployment before we see 5% again.

Another drag on spending is a lack of credit, as credit cards get pulled back, home-equity lines are withdrawn and people realize that buying the next piece of breakable stuff made in China may not be the wisest thing to do with their money right now.

At the end of last year, the U.S. savings rate went up for the first time since 1952, and saving money does not repair economic damage -- right now, it aggravates that damage.

#6 - IT spending is flat and falling.

The canary in the coal mine for the economy is business capital spending.
IT spending? What IT spending?

According to ChangeWave Research surveys, spending is flat or falling.
There are no gee-whiz products to buy and install, the number of employees is shrinking, meaning there are lots of extra computers and spare server capacity lying about. The number of licensees for a software license is shrinking and so on.

What's worse, IT spending is contracting even faster overseas, and these markets account for more than 50% of the revenue for most big U.S. tech outfits.

#7 - The government is gasping for air.

Yes, Uncle Sam is going to continue buying stuff and stimulizing (a new word for the new economy) with money it prints. And -- getting back to pure Yogisms -- it ain't gonna work.

The net decline in wealth -- including the stock market, housing, private equity, etc. -- plus the withdrawal of credit now totals $415 trillion or more. You think $700 billion for concrete and a fat guy holding a "Go Slow" sign is going to help?

Roosevelt calmed people by spending a fortune in and on the Works Progress Administration (WPA) -- great buildings and better murals, but not a lot of long-term economic impact.

We are a bit too advanced for that kind of naïve reaction. Not to mention the government is going to need many more trillions to fix the financial system.

And that's the rub -- even Uncle Sam cannot help too much, long term, as the world kicks its addiction to excess credit. And with that goes a big drop in fundamental demand, from the United States to China.