Bear Market Rally
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As I wrote yesterday morning for VRA subscribers, a bear market rally is upon us and it’s obvious even to the most newbie of investors that this one was highly coordinated at both the government and corporate levels. Yes folks, the fix was in for a stock market rally, which tells you that they are very concerned….beyond that, frightened, about the collapse in the stock market. From Fed Chief Bernanke and FDIC head Sheila Bair’s optimistic comments on the economy, to Senator Barney Frank’s comments on changing short selling rules, to Citigroups CEO Pandit’s forecast that his bank is having its best quarter since the end of 2007, ALL were determined to do their absolute best to move the market higher.
The rally may run for a short while…but barely beyond that. These bear market rallies tend to be short and sweet, but before it’s over we could have an 8-10-% move higher in just a few days. Heck, we were up 6% today alone so it will be interesting to see how far it carries us. We were certainly due for one…the last 70 days have been almost straight down.
Remember, in the 1930’s we had 10 bear market rallies in excess of 20%. This is the exact personality of a bear market.
Here’s my bottom line: S&P 500 earnings will only be about $45 for 2009, and not much better in 2010…..consumers buying power is just gone and that was the primary driver for our bull market. Add to this, US unemployment figures are headed to 10% plus (just this year) and everyone has been forced to become a saver than a spender….good news for us in the long term, but it doesn’t bode well for corporate profits this year or next. Add to that we have a President and Congress that seem hell-bent on repeating the same mistakes from the 30’s and you’ve got a bear market that ultimately winds up at Dow 6000 and most likely 5000. And, it may not stop there if the global banking situation implodes, as it appears that it might.
My best guess at this point is that this rally could last for 1 to 2 weeks, but the flow of negative news is going to be so heavy that it may not even last that long.
Kip Herriage
Editor, VRA
