Wednesday, August 19, 2009

+50% Rally Base On What!

Investors say stock market looks 6 months ahead, and prices future events. I don't have any problem with this comment, but I want to catch your attention that today marks 6 months and 2 weeks since this rally started, if bulls were right we should seen the recovery by now. I don't see any green shoot, Do you? If you see any let me know.

All we got was less bad news, second quarter earning was better than forecasted due to cost cutting not revenue growth, foreclosure is on rise, banks don't lend, retail sell did not improve, overall retail sales on a year-ago basis in July were down 8.3% . Bulls might argue that we got less bad news; I agree but less bad news can’t justify +50% rally. We rallied base on hope. Hope is not a strategy. I don’t deny the lower rate of decline in ISM and lower rate of decline in house price or unemployment, but here is the catch they manipulate the real data by diluting the seasonally adjusted data with actual data to come out with these fictitious numbers, bulls are so desperate who try sugar-coat any possible data to justify this humongous rally.

But I have news for you this is a bear market rally not a new bull market. Don’t look for green shoots if there was any I would be the first person to tell you. If you look at the 1928-1932 bear market we had an identical rally. Dow Jones rallied 50% but market dropped 89% in coming moths. Obviously I don't look for such a drop, but I want to point the similarities. In fall we are going to face the second wave of foreclosures. It would be interesting to see how many of these Zombie banks can stand it.

There is no green shoots. Bernake was hallucinating when he said "I saw the green shoots of economics revivals".