Andre J. Peschong

Ladies and gentlemen, the four week rally we are experiencing has been significant and has certainly helped all of our bruised psyches, but at the end of the day what has fundamentally changed?  We still have rising unemployment; the banking sector is still very weak, regardless of the massive injection of cash, and the political process is calling for greater scrutiny and regulation.  The global economy is still suffering a downturn in consumption and thus output.  Even our developing countries are seeing the first major pullback.  Regardless of the capital being injected into the system by the Fed and Obama’s endless rhetoric about fixing the system, our economy has a lot to work through before we get back on a growth path. 

This market rally even has some pundits calling a bottom to the market saying that we’ve had capitulation.  They claim the banking sector is sufficiently de-leveraged and that we could see a base building before we start to steadily rise.  All I can say to that is, “what information do they have, who are they talking to and what is in their morning coffee?”  This is a painful journey that does not correct itself in an instant but rather grinds itself out over time.  I am as happy as the next person that my 401k and portfolio have clawed back to dismal from utter carnage, but I am also aware that this current rally is not sustainable.  What do I base this on?  Corporate defaults Training Day ipod

are at an all time high, as evidenced by the massive amounts of capital flowing into DIP (Debtor in Possession) financings, a poor turn-out for the government’s public to private investment program, a looming commercial real estate melt-down, and GM’s potential bankruptcy A Crude Awakening: The Oil Crash video Rush Hour dvd buy American Movie filing. In fact,  I could go on and on, but you get the picture.

Here is the point of this post.  Be careful, be aware and most of all, be prudent.  Nothing has fundamentally changed in the market so these rally’s are nothing more than large institutional players shifting their portfolio’s around, allowing them different industry sector exposure.  The Dow in the high 6,000’s wanted a reason to go up and thus it looked for any good news it could to extrapolate it into higher stock prices.  I do not believe we have hit bottom yet.  This is a very emotional market with all sides trying to play a guessing game as to how the daily onslaught of news will be digested by the street, so caution should really prevail.

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