Our bear market rally has topped

Actually there have been fundamental changes in the real economy. Manufacturing orders, consumer spending, durable goods, even some home sale numbers have all been moving upward. On top of that, mortgage rates have dropped to 4.78%, the stimulus money will start flowing soon and most market participants have been cautiously optimistic about the PPIP. Come on trader1, don't close your eyes to some of the positive economic news out there while choosing to see only the news/data that supports your bearish views

We are experiencing the worst crisis since the Great Depression. There were many sharp bear market rallies then, and it will be no different this time.

Any short-term upward movements in the economic figures do not constitute a fundamental change. We are in a bear market. We will always see violent rebounds even as high as 100% off the lows during bear markets.

The PPIP is one of the worst ideas to help solve the situation. What the Geithner plan does is create an artificial market (at further risk to the taxpayer) by allowing investors to once again leverage up and buy these garbage derivatives at inflated places (which the banks will be happy to sell at the highest prices possible). There is no market for these products, because they are worth 0 at the moment. Any attempts to create an artificial market like the PPIP would will end with the losses being born yet again by the taxpayer.

The stimulus money is not going to make a significant impact on the real economy this year or even next year.

https://www.stanford.edu/~johntayl/CCTW%20Mar%202.pdf

Go to page 13 of the document, and you will see how the stimulus money is being spent. As time goes on without the money making it to the real economy, more businesses will continue to lay off workers, and the consumption will continue to decline creating a downward spiral.

I would love to hear exactly what is going to fix the economy. We are long overdue for painful readjustment. We have been having a grand old party fueled by credit excess.

Which foreign countries are going to continue buying T-bills to keep the party going? Interest rates have to rise significantly or taxes have to rise domestically. Or, the US needs to export so many goods and services in order to move back to a trade surplus so it can begin to pay off its debts. When is that going to happen?!

In my opinion, not anytime soon.

The latest numbers do look really promising. What we need is just enough good news so that people lose the fear that things are going to get a lot worse.

Once we get a couple quarters where things are generally on a upward trend I think you've see the $$$ flood back into the market. Then we have to start worrying about whether the Fed will do enough to minimize the inflationary pressure.

RF

What $$$ are going to "flood back into the market"??!?!? All the money that is being printed by governments world-wide are flowing directly to banks that are simply hoarding the cash and/or paying off their bad bets on derivatives. None of these billions and trillions are going to consumers who need to spend, spend, spend to keep Western, advanced economies going.

US household net worth just decline by $11.2 trillion in 2008. Consumers are cutting back on spending and debt, while banks are also cutting existing credit lines by 50% this year. Consumers need to pay down their debts and save more. That is the natural reaction to the situation we have experienced over the last year. People keep losing jobs, and companies are hiring less and less while also paying less and less. We are just in the beginning of a fundamental change in the standard of living of the American people.

https://www.nytimes.com/2009/03/26/us/26tents.html?hp
https://www.reuters.com/article/domestic ... B320090402

The banks aren't hording the money. The problem is, no one wants to buy the loans the banks are willing to make right now. A lot of them are sitting on huge cash reserves they'd love to lend out.

Once people realize that the economy isn't going to crash and burn they'll start buying up the loans the banks make and all that money that the gov't printed (by buying up treasury bills and other debt) is going to flood the market.

RF

I don't have time to respond to the rest of your post yet (will later) but I had to respond to this ASAP. It is patently absurd to say that these products have 0 value at the moment. They are still paying out cash flows, even if those cash flows are severely impared. If a CDO is going to pay you even $1 over the next year (or day or month) then it is worth the present value of that $1. Finance 101. These CDOs are still paying out SOME cash flow, which means you will still receive at least some cash from them (and this cash is paid at least monthly I believe) so by definition these products DO HAVE SOME VALUE. Of course I agree that the value is significantly impaired, but to say it's 0 is just absurd and ignores the most basic prinicples of finance.

I was actually impressed that AIG stated they've been able to get almost half of their "distressed assets" off the books so far.

RF

Yes, I agree that no one is buying loans, but banks are ratcheting up interest rates and making it harder on businesses and consumer to continue borrowing.

https://www.bloomberg.com/apps/news?pid= ... U&refer=us

"Banks are hoarding cash and driving up borrowing costs as Treasury Secretary Timothy Geithner seeks to spur them to resume lending by enticing private investors to buy troubled assets clogging their balance sheets."

"Now, corporate bank lending is shrinking as the worst recession since the 1930s enters its 17th month and borrowers fail to repay debt."

Touché.

I should have said, thee market values these assets at 0. Any market where there is no bid for assets, means that the current market value is 0. That is MTM accounting rule 101.

This would have implications for standard MTM accounting, as banks would then need to value the assets at 0. But, with MTM rules being relaxed, the banks get another "get out of jail free" card.

It does seem crazy that the market, by definition, is in Neutral territory. It has the makings of a suckers rally.

The whole tightness in the CDO market is really still troublesome, but there are many more things that suggest to me that equities are confused. There are fundamental relationships of market efficiency that are not working right now - I have written a paper on this recently, and am going to be working on it further for publication after I graduate.

Sadly, in the tradition of it being an academic paper, I don't want to talk to much about it as I have already nearly been gazumped on the research. There are some very interesting academic studies out there right now though. I recommend reading "Black swan in the money markets" in the San Francisco Fed working papers.

I'm not the only one seeing this as a bear market rally, and no fundamental shift in the market:

https://www.ft.com/cms/s/0/dd45a2d6-2077 ... abdc0.html

Beware the bear market bounce

By Michael Mackenzie in New York

Published: April 3 2009 19:43 | Last updated: April 3 2009 19:43

The bullish momentum of global equities, which started a month ago, has extended into the first days of April. But the pace of the rally has made many investors worried that the claws of yet another bear trap are being sharpened.

“We’re not out of the woods by any stretch of the imagination,” said Andrew Milligan, head of global strategy for Standard Life Investments. “One only has to look at the pace of rising unemployment and what that entails for corporate profits in 2010 to remain cautious about the equity market.”

Major bear markets for stocks, such as 1973-74 or the decade-long bear market of the 1930s, were periods of extended rallies that ultimately failed. A bear market rally is often short lived and explosive.

...

trader1 - i am in ur camp!

The green shoots are looking brown now! The govt has pretty much pulled all the tricks outta its bag. Lets see wht else thy got.

I'm with trader1 too. The fundamentals don't support the recent upswing in the market. It's going to come down again before the year is out.

RF

trader1 - this article seems to agree with your view :
https://seekingalpha.com/article/139311- ... sb_popular

I think Trader1 has got the point here (unfortunately). I've found this diagram that displays teh market condition and prognosys of the most prominent economicts during Great Depression.

https://www.gold-eagle.com/editorials_01/seymour062001.html

I have to chime in and disagree with Trader1 here. The market in March was priced for armagedon, which did not happen. And there have been so called 'green shoots' in the markets lately. I believe the rally was based on some fundamentals in the economy. Not good news per se, but less bad news. The rally was in large part because many economic indicators are not still plunging, but have rather gained stability.

Consumer Confidence has doubled in the past 2 months based on the future expectations component. People see things getting better in the future and not worse as things were in April. Consumer Spending has flatlined over the past 2 months and is no longer declining. Retail Sales have also reached a floor. Durable Goods orders have also stabalized and are no longer falling. In addition, housing seems to have reached a trough. Both New and Existing Home Sales have stopped falling and appear to have reached the floor. The Baltic Dry Index, which is a measure of international trade, is up 377% since its December low. TED spreads are back near there historical norms. The VIX index is back to more normal levels. Commodities are up across the board. Oil and metals are up. Dr. Copper is up significantly in the past few months. Treasuries yields are rallying as investors are moving into more risky asset classes. Banks have been able to raise capital in the public equity markets.

These are all examples of the 'green shoots' of a recovery and show the market rally does have some legs to stand on.

The run up in all asset classes (except housing) is mainly due to the excess $$ being printed and circulated around..
One cannot print the way out of a credit over-expansion, nor can one deny the ultimate contraction in the economy and assets.
The revision to the mean WILL happen - just a question what shape or form it will take.
Yes - the flow of bad news has come down...but that is expected...in any mkt..there movement up or down is never linear. And look at what the fed had to do to prop up the economy...simply unprecedented.

On treasury yields - yday the 10 yr treasury note (^tnx) jumped 5%!! tht is huge. At the sametime , dow fell by 100 points. This is not signaling economic recovery.Once the bond market dislocation starts..we ll see some real fireworks!

my 2 cents.