Sanity returns to Wall Street – for now

The American consumer ran out of money the year before last. And continued job losses combined with continued reduction in hours and income have not made it any better.

A “tighter” credit market isn’t the problem. The fact that people can not afford more credit – i.e. more stuff – is the issue.

70% of an economy based on consumer spending was never sustainable.

There will be no real improvement until we start building what we consume. This will require less cheap stuff for consumers and a solid working companies. (that is, the top and share holders need to stop bleeding them)

The plebs want it to be over – but that is not the same as it being over. Nothing has been fixed and the truth is still being buried. Hoping and wishing won’t fix it.

The psychology of finding a market bottom is a fasinating tug-of-war between buyers and sellers.

In this battle, it seems easier to rally off a false bottom than to find the actual bottom. Why?

To find the actual bottom, the final mass of “hold-outs” have to make the horible decision to throw in the towel, sellout, and swallow huge losses – not easy to do.

And before reaching the actual bottom, all the hold-outs relish any rally and of course now steadfastly refuse to sellout which in turn helps to force the rally higher as buyers have to bid higher and higher to find any sellers.

All of this seems quite sane to me; just dog-gone unfortunate for the losers.

Pardom my earlier raw version.
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No point guessing how and when financial markets and economy will improve.

1. The economy will take its time to get in a better shape.
2. The financial markets will function as per rules defined by Nobel Laureates, Professors and Regulatory Czars. You cannot dictate them. You can only hope to learn from them.

The above are predictable factors.

So, what are the unpredictable factors- security threat.

I think after Pres. Obama’s win, people have become more complacent, and believe that life is rosy again. The truth is that the threat from terrorism has not lessened. This unpredictable security factor will determine the fate of world trade in next few years. No amount of hugging Chavez, Cuba or Iran will lessen the security threat. On the contrary

And of course there is Alizée – How can you expect the markets to improve their function without her White House performance.

The problem is that the market is completely disconnected with reality and has been for some time. Back at the peak of the market there was nothing but speculation and the “greater fool theory” that suggested that stock prices were anywhere near justified. Historical measurements of the value of stocks, such as PEs were way out of whack. As I have repeatly said in previous comments, if the market was good at valuing stock prices would reflect the value of the underlying assets and the propects of LONG TERM profitability. The focus on the short term is unjustified.

I hope some sanity returns to the market. If that were to happen I would expect prices to return to 2004 levels and then grow slowly for years to come.

Also, when you read reports of the Citi Group sharholders meetings you see proof of another of my repeated assertions. Boards of directors are not really selected by the company’s owners (the shareholders)but by the CEO and his chronies. This means that the board acts in the interest of the CEOs. no wonder they and other top executives are so vastly over paid.

This is the nuttiest market, I have ever seen, we are very far from bottoming out, we need housing to at least stabilize and unemployment to stop increasing at 500K + a week. This Great Recession will last well into 2010 and this market rally is nothing more than a Bear Market Rally. It is lead by banks stocks that only showed profits by rearranging their numbers. $4 Billion profits before a $14 billion charge, in my book that is a $8 billion loss, apparently that book is not in use anymore.

If Mr Market thinks a GM bankruptcy is going to be fast and or easy, it is in for a rude awakening.

All the talking heads and pundits keep saying that monthly job loses are a lagging indicator, what rubbish, they are a leading indicator! You can’t say the economy is bottoming out while at the same time 600,000+ are losing their jobs every month! Wall St. is fantasy land. Main St. is not being fooled like they have been over the past 10 years. I hope the banksters and elites take notice that the masses have awakened, anger is building, and no amount of wishful thinking and talking will turn this economy around. No jobs, No recovery.

The Federal Reserve has created hundreds of billions of dollars out of thin air. Without that the stock market would still be falling. The economy as whole is not recovering. The banks show profits after being pumped full of federal money. Will we pump money in them forever to keep them profitable?

Investors are paying PLENTY of attention to bad news…it’s the MEDIA that blows everything up to about 100 times it’s importance. What is really funny is that these same media people want business to buy advertising to pay their salaries, but only spout bad news. NO THANKS. You cannot have it both ways.

I disagree that sanity is now coming back into the markets. Six weeks ago, the world was ending and companies were not going to make any money or stay in business. This was reflected in the stock market as everything was oversold based on armaggedon. The last 6 weeks saw a realization that the world was not ending and things were not as bad as projected. As you’re seeing, earnings are better than expected (although still not great) and signs are improving (consumer spending, energy prices, housing starts and existing home sales).

Bad news is being ignored on Wall Street in much the same way as the excessive (and now plainly obvious) unsustainable credit bubble had been.

The US economy is based 70% on the consumer. The US consumer is tapped out (big time), but the babbling talking heads all around just seem to think that IF THEY continuously talk about a recovery right around the corner, then it must in fact be coming. How? I guess the answer to that question is immaterial to them, but the reality is going to be awfully painful. Rising unemployment is not the remedy for a recovery in the economy, but does Wall Street see it? Nope. The blinders are on. Wall Street’s job is to suck in as much money as possible and it doesn’t care who gets screwed in the end. That should be painfully obvious by now, but for some strange reason it isn’t. How can/did the market rise for the past 6 weeks???? It absolutely defies any financial logic other than pure ignorance of the facts laid out before our eyes. IMHO, the market rise is a “bear market” trap that many gullible investors just fell in to. The worst is yet to come and many more loses are still to be revealed.

Think about it, the rules were just changed yet again (mark to market rules changed), bank stress tests still concealed (what are the passing criteria??? who knows…every thing is hush, hush), where is the transparency? How does anybody know what anything is worth anymore when everything is still secret or the rules change almost daily. This financial chicanery is absolute insanity and the end game will end badly, I’m afraid.

Sanity (or rationality or even evidence based thinking) and Wall Street are contradictory terms.

The banks are once again using fudged accounting figures to create paper profits which are related to no real wealth creation. Soon the bankers will use those fictional profits as a reason to pay themselves excessive salaries and bonuses. When we have son of CDO and CDS we will be back in business as per status quo until the economy tanks again. Of course, the taxpayer will pay and pay and pay….

With toxic assets reaching $4 trillion and home foreclosures for the quarter the highest on record, how are big banks showing a profit for the first quarter of 2009 ?

No, and no.

Investors are not ignoring the bad news; they just already knew about it. So, it’s not really ‘news’, and it’s already baked in to the stock prices (by the way, stock prices were already 60% down from their highs). There has not been a stock recovery; stocks are still down 5% for the year. This collapse was way overdone, and we are due for a stock price recovery, soon. But, forget about financials; they still are hiding lots of bad debts.

The worst for the economy is not over, but the rate of decline has slowed. Now, we need it to level out, and then start growing, probably around the end of this year.

There will be growth. Consumers are spending much less money on housing and interest, and they will spend this money on other things in other sectors. So, the decline in housing sales and interest paid will soon show up as growth in other sectors.

Investors and the media may have ‘bad news fatigue’ but the view from this window has not changed: minus one job (since Feb); insurance lapsed; supporting family members who moved in after they lost everything; no success so far in the job market. The plant I was laid off from may close permanently by summer (it is automotive).

No, since this story is duplicated for so many ordinary Americans, I think the celebration is premature.