Monday, March 23, 2009

Now THAT Was a Rally! Dow Up 497 Points

If there was any doubt that the biggest rallies occur during bear markets, today's stunning straight-up market move should certainly expunge those wayward thoughts.

The biggest problem (there are many) with this outsize Monday Melt-up is that it absolutely will not last. This was all about debasing the currency to pay off the criminals on Wall Street to keep the party going. If you were smart, you jumped in and grabbed your share of the loot. If you are dumb, like most investors, you sat back and watched. Maybe your 401k looks a little fatter today. Maybe you are thinking about investing a little more tomorrow, or next week, or next month. Maybe you've just given up and have doing the really smart thing and buying gold and silver, or just silver.

According to, whom I have no reason to doubt, today's gain on the Dow was the largest since November 21, 2008, meaning it was the best run of this year, and probably one of the top three or four days ever. Congratulations!

What CNNMoney is not reporting is that the November 21, 2008 move of 494.13 is that today's move was bigger (by 3 whole points) and certainly larger by percentage (the Dow was running between 7500 and 8000 then) and that November day followed two days in which the Dow dropped a cumulative 872 points. So, that was a snap-back rally (and a dumb one too), whereas today's was based on two specific news items: the administration's unveiling of their latest ploy to sop up bad bank assets - the Public Private Investment Partnership, or PPIP for short - and the number of existing home sales reported for February.

The new home sales showed a 5.1% increase over January sales, according to the National Association of Realtors (NAR), but noted that the figure (4.72 million units) is still 4.6% below February last year and that the median value of homes sold was 15.5% lower than last year. One actual bright sign was in California, of all places, where the median home price actually rose for the first time in three years.

As for the PPIP, I bow to Nobel Economist Paul Krugman, who sort of peed all over Geithner's plan in the New York Times Saturday morning, saying:
This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized.

OUCH! I agree. Once one looks inside the details of the "partnership" one can only conclude that lending taxpayer money to investors (some of whom will probably be the original investors or toxic asset holders themselves) to buy up bad debt is not a productive idea. In fact, it's just a continuance of the same things that got us into this mess to begin with: paying too much for things nobody wants or understands.

The administration's answer to the banking crisis has always been short on substance and this is no different. It's a lot of smoke and mirrors, and won't do anything substantive to alleviate the financial conditions which prevail: high unemployment, lack of confidence, slack demand, deflation. It's just more taxpayer money down a rat hole, with Bank of America, JP Morgan Chase, Citigroup and AIG at the bottom, glomming up all the free money they can.

Somebody asked me today why the Dow was up almost 500 points. My answer was the same one I have been using for just about every huge market move: "If somebody hands you a trillion dollars, you're probably going to have a party. Wall Street partied today like it was 1999, or 2003, 2005, 2006. The greedy bastards just can't get enough, and, even then, with the most accommodative policies ever in which to operate, they lose their shirts, our shirts and the shirts, shorts and pants of the next three generations. Screw them. Jump in and out of this stupid market, which is telegraphing moves like a punch drunk boxer on wobbly legs, and take some of the money yourself.

Making today's huge gains look somewhat more absurd, the World Trade Organization (WTO) reported - around 3:00 pm - that global trade would decline by 9% in 2009. That's just fine, as Wall Street was too busy to notice, as they tacked on the last 125 points leading up to the historic close.

Dow 7,775.86, +497.48 (6.84%)
NASDAQ 1,555.77, +98.50 (6.76%)
S&P 500 822.92, +54.38 (7.08%)
NYSE Composite 5,185.86, +353.73 (7.32%)

Market internals were strong, with advances favored over declines, 5747-896, a ratio of more than 8-1. There were gains in the number of new highs reported today, but they still did not eclipse the new lows, which remained higher, 102-26. Volume was as good as any day of the past two weeks, still on the high side.

NYSE Volume 1,916,566,000
NASDAQ Volume 2,255,664,000

With Wall Street going bonkers, commodity traders were less impressed. Crude oil gained $1.73, to $53.80. another new high for the year. Gold lost $3.70, to $952.50, but silver tacked on 4 cents, to close in New York at $13.88.

The Dow is now up 1230 points in just two weeks, a nearly 19% gain. With little - if any - resistance up to 8000, odds are good that this rally will have legs, though taking economic news seriously, something Wall Street seldom does, could produce different outcomes.

In any case, that was one hall of a rally.

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