Tuesday, December 9, 2008

Are Stocks Off To The Races? Maybe, Maybe Not

Does The Friday Reversal Into A Strong Move Up Monday Signal Up, Up and Away?

To recap, Friday we had horrendous numbers on the employment front, an initial market drop on the order of 3% into a closing rally pushing stocks up around 250 points. As is typical when you get that type of key reversal, the follow through Monday was quite strong, aided by a reported plan floated by President Elect Obama for a huge public works program that could run in the neighborhood of $1 trillion as well as an apparent deal in the auto bailout talks.

Now when we have bad news that becomes good news for the markets, that would usually signal something very bullish. Is that the case now? Is this the start of something good? The end of the bear market and now a forward looking stock market predicting an end to the recession? Or is this a bull rally in a continuing bear market? Well, volume is not particularly great which is not a positive sign. That could mean that there is a temporary exhaustion on the part of the sellers, with no real conviction by the buyers. On the other hand, if this spending plan were enacted by soon to be President Obama, would this type of fiscal policy by the government take us to the promised land? Governments should probably not be in the position of trying to spend our way out of an economic malaise, but there might be a short term pop or perhaps the start of something big.

What we do know is that the economic conditions that were in place on Thursday of last week are not any different today. Prognosis still remains in the camp of this recession/depression going on a ways more. The Conference Board estimates that job losses which have reached 1.9 million during this downturn could reach 3 million before it's all over.

Should we, if there is any money left in the piggy bank, be aggressive buyers of stocks at these levels? Tough question with no right answer. If the market is going up you should, and if it is going down you should not. You can listen to a variety of analysts and get firm answers on both sides. All that I do know, is something that Harry Truman said:

“It's a recession when your neighbor loses his job; it's a depression when you lose yours.” ~ Harry S. Truman

While I am at it, remember this quote by J. Carl Cook:

"Minor surgery is surgery someone else is having."

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