Bounce goes the Bear Market

Friends,
Happy lucky Friday the 13th to all. Markets are of such interest that it seems for now that this Friday the 13th, and every Friday blog entry will need to continue assessing each Wall Street business week’s economic significance in prophecy.

Thirteen has been a lucky closing date for the DOW Jones this week, enjoying a sustained rally finishing off Friday at 7223.98 with a nine percent increase of value. The bear market came over the mountain, as the song goes, and saw what he could see, a bounce in stocks. The bear can in part thank Citigroup’s Chief Executive delivering a memo Wednesday saying the bond-bungling banking giant was profitable in the first two months of 2009 and he says he “is confident about its capital strength after tough internal stress tests.” Oil sales were on a modest profit increase as well. Retail watchdogs report a trickling uptick of spending again for a second month in a row.

It seems all prophets of 4,000-point dropping-to-doomsday markets will have to wait for another crisis in the economy. The bear market fell in a 500 to 600 point hole deeper than 7,000 points in March, before bouncing out this week.

My intuition has said 7,000 points is the true bottom for over a year now, long before we arrived at the “Great Recession” as European economists are now calling it. I’m on record saying that 4,500 is the worst though exceedingly temporary depth of cratering below 7,000. We will bounce above and fall below 7,000 but it will remain the aggregate level trend of the market for a few months, then we’ll have to see what the coming G-20 meeting in Europe along with the credit card and Altay loan crises will do to the markets.

Fortunately for all points of mutual economic interest, Citibank’s date with nationalization and the collapse of GM have been postponed. Indeed, we know now how deep the economic bear market trap could go when only rumblings, rumors and the rumination of a sea of talking TV ditto pundits from “sea”-NN to shining CNB-”sea” can make the market scratch its own hole a little more than a half-thousand points below 7,000. The real socialization of either of these industry giants succumbing to AIGgues of bad business and banking could dig that hole a lot deeper. However, I will say for the prophetic economic record here that what happened this week vindicates my oracle’s intuition that craters in the math falling deeper than 7,000 points on the DOW get filled up pretty fast on the smallest inklings of good economic news. It’s a hopeful sign that deep down the market wants to rise — can rise — if given some psychological assurance. Beware, therefore, of desires to blow it with another bubble — another falsehood.

The market also had a bear bouncing out of the trap this week on news from Congressman Barney Frank, the head of the U.S. House Financial Services Committee, that the Securities and Exchange Commission would soon re-impose the so-called “uptick” rule, which forces short sellers to sell at a price higher than the previous trade.

Barney’s “I love you, you love me” speculation sexing up the market’s climb indicate to me that the systemic core of our economic problems, which I defined in detail (click on Predictions), are still in place to drag the market disastrously downward back to 7,000 points in the coming months after some seemingly hopeful rallies.

Slipping back into bear traps might not happen immediately. Indeed April might see a modest rally of improvement once taxes are filed and some Americans begin to feel the first weak spring sunshine of Obama’s stimulus program after the long, dour DOW-ful winter of 2008-09.

There are more dangers coming for those hunting for bear market bounces and bailouts. The credit card trap is set to snap coming no later than May. The Altay loan trap will be set afterwards. Then there’s the bear market playing dead road kill after being run over by the auto wreck that is Detroit.

The market improves, but it doesn’t stop the only drugstore in my little town from closing its doors today on Friday 13th, surrendering itself to other empty storefronts.

Obama has a karmic echo to Lincoln. He’s marching confidently off to his first Bullish Run at economic battle. Remember, Lincoln endured not one but two Bull Run routs of his stratagems and a half dozen other military disasters before he turned the tide by the end of his first term in office. I hold prophetic hope that Obama will succeed, even survive to succeed, but this battle with the economy has a lot of bear left in it, and that’s no Bull running.

Next week will test this week’s rally. There is talk of market-to-market accounting rules changing and a clear message from Germany and France that they are two G-20 European powerhouse economies definitely NOT on the same accountant ledger supporting Obama’s big stimulus plans for the world. Europeans may have learned through hard lessons that throwing gobs of government money at markets does not cook up economic growth. Finally, yet importantly, the Obama Administration’s Auto Task Force hired a bankruptcy lawyer Friday afternoon a moment before I post this article. Quietly a reality moves forward, despite GM’s positive rise in the stocks. Restructuring and some form of temporary nationalization are still in the works.

John Hogue
(13 March 2009)

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