A+: Why This Rally Is Not Sustainable & The Huge Role Goldman Has Had In Spurring It

Quote from makloda:

Just for the record, I'm probably as bearish as anyone. Just laying out both cases. I personally don't buy the V-Shape pipedreams because they were built by economists fed with data of cyclical (inventory/manufacturing) post WW2 recessions, not with the little data we have on banking and credit busts. At best, I think we'll see a jobless recovery with years of below potential GDP growth, lots of junk-debt defaults, sub-par corporate margins, relatively high unemployment, low inflation and Rosenberg's "frugal consumer". Unfortunately, that doesn't translate into a dead-sure prediction for stocks. I am now net short but I will reserve my bets once I see evidence to the contrary.

For stocks, what I see in my trading is that the lowest quality, most shorted, most leveraged balance sheet garbage stocks were rallying the most. The $BKX is up 150%, the MS cyclical index is up 100% in 10 weeks. Hysteric short squeezes in casinos, REITs, cruise ships, banks, insurers. A rotation out of junk into better balance sheet stocks during an overall sideways consolidation (we had that end of 2003/early 2004) would be bullish IMO. But so far, trash is king.

One indicator that bears watching is HY bonds, which rallied back to mid-September Lehman levels. http://www.bloomberg.com/apps/quote?ticker=NBBHYL:IND -- this should tick up instantly on any deteriorating in economic expectations.
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"For stocks, what I see in my trading is that the lowest quality, most shorted, most leveraged balance sheet garbage stocks were rallying the most. The $BKX is up 150%, the MS cyclical index is up 100% in 10 weeks. Hysteric short squeezes in casinos, REITs, cruise ships, banks, insurers. A rotation out of junk into better balance sheet stocks during an overall sideways consolidation (we had that end of 2003/early 2004) would be bullish IMO. But so far, trash is king."

Thank you!

Outstanding point and absolutely true.
 
Quote from Eight:

At least in the current rally we aren't seeing the phrase "secular bear market" every other post... that drove me nuts in 2003. In the 90's it was "nosebleed levels". People complained about the nosebleed levels all the way up!! And then they couldn't deal with the market on the way down !! Who cares about anybody's opinions let alone some kid that discovered word processing last year...
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Topsurfi has made some great points.

As to your point, eight, I do believe the S&P has a current P/E ratio of 60, which is incredibly high, which may be of interest to those who take such fundamentals into account.
 
Do we have any evidence that the banks were using TARP money to buy their own stock during this last rally? If so, one should expect this driving force to stop once they issue new stocks and start paying back TARP funds.

If that is the case, should I say mission accomplished.
 
technically speaking:
950 level in the S&P is going to be a critical technical level. It must be breached with high volume however for the bull case to continue. I don't think it's going to happen. This whole rally has been on tepid volume.

fundamentally speaking:
Unemployment will remain high and this will crimp demand.
Inflation will come roaring back with oil back near $100.
I see nothing but misery ahead for the US economy. How can there be a bull case here ? I see the market going back down....and then staying there.
 
Fantastic article that points to an incredible tank in the U.S. economy, even from these levels.

Save your money. Stay liquid and defensive. A shit storm will intensify the pain for a long, long time.

The stimulus money is a cruel joke; it will hardly created jobs, and has simple led to to false hopes (85% of it went to unemployment insurance, health extension payments for those laid off, and other state and local programs of limited duration):


In the first weeks of Mr. Obama’s tenure, he persuaded Congress to approve $787 billion worth of federal spending to stimulate the economy — $288 billion in tax cuts plus $499 billion to aid states and local governments.

In crucial ways, this spending has already had an effect, say economists. It extended unemployment benefits and food stamps, while cutting by nearly two-thirds the amount that laid-off workers must pay to retain their health insurance.

But whether it revives economic activity remains unknown. The tax cuts are only now being distributed. Only about $75 billion has been dedicated, mostly to public works projects like road-building.

“The moment of truth is coming soon,” says Mr. Zandi. “If we don’t see something real in the data by June, then I get very nervous.”

Be prepared to get very nervous, Mr. Zandi.

http://www.nytimes.com/2009/05/10/business/economy/10boise.html?_r=1&hpw
 
Quote from ByLoSellHi:

Fantastic article that points to an incredible tank in the U.S. economy, even from these levels.

Save your money. Stay liquid and defensive. A shit storm will intensify the pain for a long, long time.

The stimulus money is a cruel joke, leading to false hopes (85% of it went to unemployment insurance, health extension payments for those laid off, and other state and local programs of limited duration):

http://www.nytimes.com/2009/05/10/business/economy/10boise.html?_r=1&hpw
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ByLo,
could you posted the article? the access requires one to register.
 
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