We always find it important to test our current market hypothesis against the prevailing market wisdom. Since we are contrarians and tend to run against the herd, we constantly need to check ourselves against the crowd to ensure our market assumptions are fresh and unique.

That said, here is our contrarian stock market investing guide for today:

• In the Bullish camp we hear a lot of talk about how the markets will bounce back 'as they always do' from the current slump. This Perma Bull outlook seems unrealistic to us especially in light of the current unprecedented credit problems. But it has consistently been the right outlook and the contrarian within us says it may very well be the scenario that plays out simply because it seems least credible.

• In the long-term Bullish but short-term cautious crowd the consensus is that we have 2 more months of volatility and corrective action before it's off to the races again. In other words, a good buying opportunity is approaching later this year.

This crowd we do take seriously. Firstly because it contains some long time market commentators who we respect and with good track records. But secondly, in the face of all the doom and gloom, end of world, credit crunch scenarios that the market has had thrown at it we STILL have not had so much as a 10% correction in the major indexes.

Add into the mix the fact that the Fed will open the sluice gates once things get really bad and it's a fair bet that this middle of the road outlook may indeed be correct. Unfortunately, we're just not the middle roaders - so onto the bearish case...

• We are seeing some troubling signs out there which are forcing us to be more cautious than the above 2 scenarios.

Firstly, we have constantly been refreshing our views in 2007 crash market stock update. Now we realize crashes are very rare but as detailed in the above article, the similarities between today and 1987 are a little bit too eerie to ignore. However, our hypothesis is based on the fact that long-term bonds will turn down and soon. That has not happened in a material way yet, so we cannot confirm this scenario is underway.

Secondly, the fact the yields on 30 day T-Bills dropped through the floor last week indicates that nobody is brave enough to put the Fed injected liquidity to work. Institutions have chosen to park their cash in the safest instrument they know and adopt a wait and see attitude for at least 30 days.

Now this of itself doesn't surprise us, but what does surprise us is that for the longest time inflationists have told us deflation is virtually impossible. Since the Fed can inject an unlimited amount of money into the system and keep it afloat, deflation can never happen. WRONG! Deflation is possible if nobody is willing to do anything with the money the Fed has injected! And that's exactly what we're seeing now. The term 'pushing on a string' comes to mind.

And thirdly, we are still haunted by Ian Gordon's K-Wave analysis that in the Kondratieff Winter we experience a deflation AFTER a credit crunch and debt is expunged from the system though defaults. BINGO! Are we not in a credit crunch now?

As we showed in our article "Gold Stock Market Quote say BUY", the fact that the yield curve has widened considerably (in no small part due to the 'panic' into short-term paper) and Gold stocks have held above their 1 ½ year support whilst major indexes have turned downwards, indicates to us that we may actually be at the start of another 2 year Bear Market akin to the 2000/2002 experience.

More commentary and stock picks follow for subscribers...