Sunday, March 29, 2009

The Bull Market Lie

After months of dire predictions from the various Financial Network Anchors, reporters and editors, these same people are telling us that the worst is over and we have seen the bottom of the economic crisis. Their reasoning is that the stock market has been rallying. However, a look at history will show that even in the depths of the most vicious Bear Markets there are rallies that often times brings the indexes up by as much as twenty percent before they reverse give it all back an tack on another 5 % on the downside just for good measure.

The important events in March that caused this rally are not the Treasury Plan, or the announcements by banks that they are doing better. Stock market rallies in the middle of a prolonged Bear Markets are usually caused by a beast know as short covering. This is when sellers of stock that they do not own begin to buy the stock to cover their position in order to lock in a profit. As they begin to buy stock to cover their short position it causes a short squeeze, wherein the volume of the stock being bought forces up the price causing other short sellers to buy creating more demand and even higher prices. When the short squeeze subsidies the Market price will again be dictated by the true valuations of the underlying corporate entity.

March is important because it is the last month of the first quarter and in order for money managers hedge fund operators and mutual fund managers to pretend that they were on the right side of things during the quarter they will buy the stocks that have done relatively well and report them as part of their holdings at the close of the quarter. This illusion makes their customers think that these managers know what they are doing because they owned all the right equities during the quarter. They just don't inform their shareholders that they only bought those equities in the waning hours of the quarter.

April is sure to bring surprises, it is the beginning of earnings reporting by the corporations for the quarter. With consumer confidence at historical lows and unemployment creeping up at record proportions earnings season is sure to disappoint the investors who will see that the economy did not have enough time nor stimulation to even begin to recover from the Ponzi Schemes of the Financial Institutions such as AIG, Citi Group and the like.

With the Government failing to help the average people of the Nation wade through the economic catastrophe caused by the unregulated trading of the Financial Corporations, consumers are at the end of their buying ability. Credit Card Companies left unregulated have forced thousands into bankruptcy on a monthly basis, and tens of thousands to just stop paying. Credit Card Companies will be the next industry crying that they can't make money even after charging people upwards of 43.99% interest over the last eight years of Republican deregulation shepherded by the Bush Administration. The other shoe that will drop will be the bankrupting of Commercial Real Estate Companies who are faced with their highest vacancy rates ever, this will force them to walk away from mortgages and loans that will again put a dent in the fragile balance sheets of banks.

When the TV Market Man tells you, "Buy Stocks Now", we are in a Bull Market, do not believe the hype. At most we are in a Bull Rally in the middle of a Bear Market where all of the bad news and depressed earnings have not even been revealed yet.
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