Monday, May 4, 2009

The Grand Deception Continues as Stocks Soar

Regular readers of this blog will note that I have been completely wrong about the current stock market rally for more than a month. I apologize for any disservice I may have done to otherwise level-headed investors, but my position remains the same. This is a bear market rally, and, as such, any gains are subject to being wiped out at a moment's notice.

That said, I have and will try my level best to temper my opinion with facts and the facts should be sufficiently clear by now that the economy is far from any real recovery. It is also my opinion that the bottom reached in March was not the absolute bottom and that there are further hurdles ahead for stocks and the general economy.

One of those hurdles was pushed back a bit further, for a second or third time. I am talking about the release of the government stress test results on 19 of the nation's largest banking institutions. The release of this information has been pushed back to Thursday of this week. They were originally to be made public today.

The government's continued coddling of the banks and closeness to them is disconcerting, not only to me, but to a good number of economists and especially to Senator Dick Durbin, who last week announced that the banks "own the place," that place being the US congress.

So, just to be clear, I am mistrustful of Wall Street's ways and will continue to proclaim this rally as false. For more interesting reading on how corrupt the government and the banks have become, check out Rob Kirby's Market Observation from April 20, called "The Big Lie" in which he points out that foreign investors have already stopped buying US Treasuries and that the Federal Reserve likely has been engaged in more buying of Treasuries than the American public is being told.

With that information in hand, we may be witnessing the beginning of a great reflation of the economy. with stocks going up, commodities, and then, everything else (except wages, of course) will rise in price. Such a scenario - which the Fed is actively promoting - will signal the death knell of America as we once knew it. You will need to own more stocks at higher and higher prices just to keep up with the gallop of inflation. It is the worst of my fears. I would much rather see deflation take firm hold because at least it keeps food, fuel and other necessities of day-to-day living affordable.

Stocks were sent soaring on Monday after data showed construction spending and home sales both higher from the previous month.

While the pair of data sets were encouraging to many on Wall Street, closer inspection of the construction spending data showed that most of the increases were in commercial and government spending, not residential. The increase was likely the result of the nearly $1 Trillion federal stimulus bill, passed in February and now hitting the mainstream and Main Street. Despite the rise, construction spending - up a whopping 0.3% in March - is still 11.1% below 2008 levels.

And while more people may be buying existing homes, they are buying them for lower prices, with investors scooping up foreclosed properties as investments.

Nonetheless, investors looked the other way on any bad news, as they have for the past 8 weeks and sent stocks soaring to 4 month highs. Of the major indices, the NASDAQ and S&P 500 are now in positive territory for the year, though the dow is getting closer, having closed at 8776.39 on December 31, 2008.

Dow 8,426.74, +214.33 (2.61%)
NASDAQ 1,763.56, +44.36 (2.58%)
S&P 500 907.24, +29.72 (3.39%)
NYSE Compos 5,800.22, +231.46 (4.16%)

For the session, advancing issues far exceeded decliners, 5333-1261. New lows retained their edge over new highs, however, 101-66. Volume ticked up somewhat from last week's subdued levels, and it remains to be seen if investor interest will remain strong at such lofty levels. The odd characteristic of this rally is that there has been no significant pull-back at any juncture, somewhat difficult to believe in the current economic environment.

NYSE Volume 1,714,092,000
NASDAQ Volume 2,554,642,000

Commodities plowed ahead as well, with oil gaining $1.27, to $54.52. Gold rose $14.00, to $902.20, with silver adding 61 cents to settle at $13.11. Foodstuffs were mixed, but all energy-related commodities shot higher.

So, Wall Street has sounded the "all clear" once again and investors have responded like sheep instead of thinking, rational beings.

Here's Art Cashin on CNBC, talking about low volume rallies in bear markets and whether or not the markets are about to "roll over."

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