Las Vegas, Nevada

This marks my first trip to Freedom Fest in Las Vegas. Nowhere will you find a greater concentration of Libertarians and bears than right here. Some big guns in the past have spoken at this conference, including Texas Congressman, Ron Paul -- a Libertarian.

My personal favorite is Doug Casey, an incredibly gifted investor, contrarian and, if you've ever heard him speak, a great entertainer. Nobody gets an audience going more than Doug.

This is my second visit to Las Vegas since March and my third trip here in less than 12 months.

A year ago, the streets on Las Vegas Boulevard were almost deserted; I always make it a point to ask merchants, hotel clerks and taxi drivers how business is coming along. A year ago, it was dreadful. But my latest survey, conducted on Wednesday, discovered a joyful mood among my leading indicators with taxi drivers exclaiming how busy it's been here recently, including the July Fourth weekend. The Bellagio Hotel, where I'm staying, is packed.

I interpret the revival in tourism in Las Vegas as a bear market rally where heavy discounting attracted visitors and bargain-hunters. Hotel rates plunged. I doubt this mood will last. People are still losing jobs in the United States and wages are barely keeping pace with expenses. Also, the state of housing remains depressed – still more than 30% off its all-time high – implying most people are probably spending above their means.

In other words, domestic consumption hasn't fully reflected the loss or deterioration in balance sheets since 2008. Stocks also remain about 35% below their October 2007 all-time highs.

Walk into Bally's, where Freedom Fest is being hosted, and you turn an eye-popping cautious on the economy and the markets.

In many ways, this seminal conference is a contrarian's dream because virtually everyone is tired of big government, fiscal deficits, the dollar and the direction of the Obama economy. Delegates here are convinced Obama is a one-term president and that he'll sink the economy.

Under normal economic circumstances, I would interpret this crowd as a buying opportunity for stocks and a bearish signal for all things hard like gold, silver and other raw materials.

But not this year. And not in the confines of what I would coin the most dangerous market environment since 2007-2008. Most investors still fail to appreciate the grave danger unfolding in Washington regarding policy initiatives, financial reform (barely any reform at all) and the growing fiscal crisis spreading across most states and municipalities.

Stocks are now mustering a long overdue rally since Tuesday and that should come as no surprise following weeks of heavy selling.

Yesterday's big gain for U.S. averages was accompanied by unimpressive volume and new lows were more than new highs. I'm a bear and would use this rally to unload unwanted equity risk and add to intermediate and long-term Treasury bonds as prices ratchet higher this week. I remind investors that with the exception of 2009 – a massive bear market rally – most summers since 1997 have been marked by big declines in asset prices; governments have a habit of unloading bad news in the summer.

The primary trend of the market since May is down. The economic backdrop has deteriorated markedly over the past eight weeks with unemployment stubbornly high, bond yields triggering a sell signal for risk assets and TIPS' break-even rates crashing to levels unseen since the depths of the credit crisis in late 2008.

The sovereign debt crisis in Europe has just begun with more pain ahead for the fiscally challenged in the eurozone's periphery. Deflation is accelerating across Europe – and that alone will provide a huge gap in global demand over the second half of the year. This leaves the United States, Japan and China as the world's consumers of last resort. And that's not a bullish picture.