Just like the Energizer Bunny, this rally is still going. Although it’s weakening, the upside momentum pushed the equity markets up again: the S&P moved up 1.7% in a holiday shortened week.
Fundamental data was still weak: initial claims were at 654,000; continuous claims hit 5.84 million (another record); consumer credit plunged; trade collapsed; and the treasury budget for 2nd quarter of the FY rang up a deficit of almost $200 billion–also a record.
Corporate earnings for Q109 got off to a poor start: Alcoa missed by reporting losses that were worse than expected. And the next two weeks promise to deliver a storm of grim results and weak outlooks–especially in the non-financial sectors which the recession has now slammed into.
Technically, on a daily basis, the rally is becoming extremely overbought. And it shouldn’t take much–in the form of news–to spark a meaningful pullback. The test will be whether critical former levels, like 750 on the S&P, will hold.
On a monthly basis, the bear market is still fully in effect, and in no imminent danger of ending.
In this week’s Barron’s, William Black, a veteran regulator from the S&L crisis of the 1980’s (and now an economics and law professor) made some bold and startling assertions about the Obama administration and its handling of the current financial crisis.
When asked about the approach taken by the administration, he stated: “we have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure?”
Speaking of the PPIP plan to remove toxic assets, Mr. Black said: “It’s worse than a lie…..The current law mandates prompt corrective action, which means speedy resolution of insolvencies. [Geithner] is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into a sucker….He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.”
And summarizing the credit crisis, he states: “With most of America’s biggest banks insolvent, you have….a multitrillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale.”
Aside from ruining his presidency, Mr.Obama, according to Mr. Black, will ruin the economy.
Let’s hope he is wrong.