One might wonder if a new bull market surge underway will be lasting as the stock market has put on quite a performance over recent trading sessions.
Last Friday's trading sessions on the NYSE and the NASDAQ were attention getting amazing. CitiGroup reported a huge $13 billion write down for the first quarter and that it was cutting 9,000 jobs. That was taken as good news as it might be the last of the bad news and Citi's stock surges. What optimists the current largely untested in a bear market group of money managers are.
Google then reports that earnings for the first quarter were better than expected and the stock takes off and closes 20% higher,Google's best one day performance in over two years. Another 4650 job cuts are announced by AT&T and this is taken as more good news as it means that AT&T is taking action in the face of a recession. For the day the Dow is up over 200 points and is closing in on Dow 13,000.
What is happening here? An investor who is looking at the stock market performance of late may draw all of the wrong conclusions. He might think that the real estate market has suddenly recovered, that the subprime mortgage fiasco is over, that the 45 trillion dollars or so of weird unmarketable derivatives sitting on the books of the world's major financial institutions are solid AAA investments, and that the US recession will be over before we know it.
It would be easy to think all of these things based upon the stock market's performance since Helicopter Ben and Hammering Hank Paulson engineered the Bear Sterns rescue plan and opened up the Fed overnight window to brokerage firms. Countless billions of low cost money was suddenly made available to the brokerage firms.
And therein probably is our answer to the stock market's new life. With fresh multi billions injected into the banking and stock brokerage communities who can doubt that a significant part of it has fueled the recent stock advances? Bravo for Ben and Paul, both heroes of Wall Street.
However, at what cost? The billions of dollars that Bernanke is pouring into the financial system must come from somewhere and they do. The Fed's high speed printing presses must be smoking hot these days.
Money is being spent by the Fed and the US government like they really have it to spend. Sadly they do not. As the world's largest debtor nation the US is digging itself into such a deep hole with it's borrow and spend policies that it may never fully recover.
M3, which the government stopped reporting some time ago, has been growing about 15% until recently. Currently M3 is estimated to be expanding at a rate greater than 20%. This printing of fiat currency is going to cost the US dearly over the long run. Inflation is already climbing fast as prices for energy, food, healthcare, and hard commodities soar as monetary inflation gains ground.
Make no mistake about it. A perfect financial storm is brewing and the helicopter money for everybody who is a fat cat in America tactics of Bernanke and Paulson in dumping buckets full of money on Wall Street are going to contribute to the storm's intensity.
Once inflation really kicks in at double digit numbers, which will likely be all too soon, the Fed will have to start increasing interest rates. Raising rates in a weak economy will bring Wall Street back to earth. In the end the tricky Big Mean Bear will have his way.
Don't forget to sell the rally. It might be your last chance to move out of stocks at attractive prices for a long while. It seems to me that this is a last gasp bull market rally before the market heads lower in a horrifying manner.
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