The U.S. stock market has staged one of its most powerful rallies in history, zooming nearly 70% in the 12 months that followed the March 9, 2009 market low. U.S. stocks soared another 5% during the first three months of 2010 - its best first quarter in a dozen years. But where do we go from here?
Between the New York Stock Exchange continuously reaching new highs, the Dow Jones Industrial Average rising up along its eight-day average, and a rebounding retail sector, there's reason to celebrate what appears to be a market recovery offering investors profit opportunities.
"You can't bury your head in the sand and ignore what's happening," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "If you did that, you've missed a 60%-plus rally in the [Standard & Poor's 500 Index] since early last March. You cannot fail to acknowledge what's happening" in the markets, even though top traders understand that cheap money from the government bailout - and not a well-rounded economic recovery - is most likely behind the torrid run-up in U.S. share prices.
Money Morning Question of the Week: Is this a true bull market? A year from now, are U.S. stocks - as measured by the Standard & Poor's 500 Index - trading higher, lower, or at the same level as they are today?
What follows are some of the most well thought-out responses we received (as well as a previous comment regarding the bull vs. bear market argument posted on our Web site) with many agreeing this bull market is too good to be true.
Headed Lower My guess is that the stock market a year from now will be a lot lower [than it is now]. I suspect that when we are able to look back on the recent "bull market" in a larger or longer context, it will show up as a large bear market bounce, fueled by a huge government stimulus and ultra-low interest rates that make keeping cash in U.S. Treasuries or money-market funds very unpalatable.
The market crash that ended [at least for the moment] a year ago was triggered by excessive debt, financial manipulation, deceit, and a lack of true moral hazard. We now have even more debt, unabated financial manipulation, collaborative deceit between the Fed and Wall Street, and confidence bordering on certainty that if the too-big-to-fail (TBTF) guys fail again, the government will not dare to not bail them out again, so pile those bonuses deeper!
Given that the "recession" didn't clean up the problems that caused it (as a consequence of unprecedented government intervention), I don't see any way that we can avoid another drop, deeper and harder, to correct the problems that were not allowed to correct on the previous iteration. I do not know when the next collapse will begin, or what will trigger it, but with the PIIGS, underwater mortgages, $3 trillion-plus of U.S. short-term debt to roll over to reluctant creditors, a possible trade war with China, and a host of other threats, it is a target-rich environment.
What I can say is that if another collapse happens between now and elections this November, and the too-big-to-fail banks come back to Congress demanding another bailout, they will get a lesson in moral hazard. If our Congress-critters voted to bail them out again in the months or weeks leading up to the election, most of them wouldn't even dare to return to their districts to campaign for re-election. And if [U.S. Treasury Secretary Timothy] Geithner or others in the administration tried to bail out the banks without Congressional authorization, I would expect to see immediate impeachment hearings and legislation blocking such a bailout. Americans have NOT forgotten the previous bailouts, not to mention the gargantuan bonuses that the bankers then paid themselves on the heels of that bailout.
I do not know (I don't believe anyone does) where the Dow [Jones Industrial Average] might end up in the midst of such events, but assuming we still had an economy, despite the threats of the TBTF banks, then I would not be surprised to see it touch lows of 2,500 or so. Such a collapse would cause tremendous collateral damage on Main Street, as well as Wall Street, but if it really liquidated the corruption that brought this about in the first place, it would be worth it. Such a liquidation is necessary to develop a foundation on which real growth and prosperity can develop.
- Gordon F.
No comments:
Post a Comment