SP Futures Hourly Chart Update at 2:30 PM

This may be a 'reflationary rally' such as we had seen off the market bottom in 2003 which precipitated the housing bubble. The rally in gold and silver with the falling dollar helps to reinforce that view. The Treasury and Fed are monetizing debt at a brisk pace. This is bullish for stocks from a nominal standpoint at least.

We are skeptical of an economic recovery, and prefer to think of this stock market action not as signalling a real bottom but as a sucker's rally in which insiders unload positions on the naive and unsuspecting who are taken in by false optimism. It is difficult to tell however, given the opaque nature of the US financial system.

The chart technicals say that if it is not a genuine renewal of the bull, then the rally will likely fail around 915-920. If it is, then it obviously may keep drifting higher along the diagonal trendlines until something dislodges its momentum.

The market will let us know which one it is reasonably soon. Try not to outguess it if you value your portfolio. This is still a "trader's market."

Our key short term indicators have not yet delivered a SELL signal.

The Cause of the Financial Crisis

Jamie Galbraith leaves out a couple of key component of the ramp up to this crisis.

The corruption of the political process, increasingly dependent on large campaign contributions, by the large corporate interests set the stage for the erosion of public regulation of markets and the rule of the law.

And of course, Alan Greenspan, without whom this disaster would almost certainly have not been possible.

Dr. Greenspan, at the Federal Reserve, with a bully pulpit and a printing press.


Texas Observer
Causes of the Crisis
James K. Galbraith
May 01, 2009

...This is a panel on the crisis. Mr. Moderator, you ask what is the root cause? My reply is in three parts.

First, an idea.

The idea that capitalism, for all its considerable virtues, is inherently self-stabilizing, that government and private business are adversaries rather than partners...; the idea that regulation, in financial matters especially, can be dispensed with. We tried it, and we see the result.

Second, a person.

It would not be right to blame any single person for these events, but if I had to choose one to name it would be... former Senator Phil Gramm. I’d cite specifically the repeal of the Glass-Steagall Act—the Gramm-Leach-Bliley Act—in 1999, after which it took less than a decade to reproduce all the pathologies that Glass-Steagall had been enacted to deal with in 1933.

I’d also cite the Commodity Futures Modernization Act, slipped into an 11,000-page appropriations bill in December 2000 as Congress was adjourning following Bush v. Gore. This measure deregulated energy futures trading, enabling Enron and legitimating credit-default swaps, and creating a massive vector for the transmission of financial risk throughout the global system. ...

Third, a policy.

This was the abandonment of state responsibility for financial regulation... This abandonment was not subtle: The first head of the Office of Thrift Supervision in the George W. Bush administration came to a press conference on one occasion with a stack of copies of the Federal Register and a chainsaw. A chainsaw. The message was clear. And it led to the explosion of liars’ loans, neutron loans (which destroy people but leave buildings intact), and toxic waste. That these were terms of art in finance tells you what you need to know. ...

The consequence ... is a collapse of trust, a collapse of asset values, and a collapse of the financial system. That is what has happened, and what we have to deal with now.

Can “stimulus” get us out?

As a matter of economics, public spending substitutes for private spending. ... But it is not self-sustaining in the absence of a viable private credit system. The idea that we will be on the road to full recovery and returning to high employment in a year or so therefore seems to me to be an illusion.

And for this reason, the emphasis on short-term, “shovel-ready” projects in the expansion package, while understandable, was a mistake. As in the New Deal, we need both the Works Progress Administration ... to provide employment, and the Public Works Administration ... to rebuild the country. ...

The risk we run, in public policy, is not inflation. It is lack of persistence, a premature reversal of direction, and of course the fear of large numbers. If deficits in the trillions and public debt in the tens of trillions scare you, this is not a line of work you should be in.

The ultimate goals of policy are not measured by deficits or debt. They are measured by the performance of the economy itself. Here Leader Armey and I agree. He spoke with approval, in his remarks, of the goals of 3 percent unemployment and 4 percent inflation embodied in the Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978. Which, as a 24-year-old member of the staff of the House Banking Committee in 1976, I drafted.

US Equity Rally in Context From the Start of the Bear Market

So far the rally appears to be 9/10ths short covering and momentum speculation.

In order to proceed further and break through some formidable overhead resistance real buying by insitutions and individuals must appear and the volume adjusted cash flows must turn more positive.

In other words, so far a typically impressive bear market rally that may be getting overextended without a serious revaluation of the ecoomic outlook. Next week's Jobs Report may help in that assessment.

The insiders and hedge funds still holding equities would greatly enjoy the stock piggies (institutions, 401k's and private investors) coming back into the markets so they can continue to unload their increasingly worthless assets.



Here is the big picture. It is 'possible' that this is not a bear market which we are experiencing.

However, there is a dramatic spread between 'possible' and 'probable' that even our mighty Fed and Treasury cannot easily diminish with their printing presses.

Silverton Bank of Atlanta Fails

Silverton Bank of Atlanta, Ga. fails; 30th of year
By Wallace Witkowski
4:17 p.m. EDT May 1, 2009

SAN FRANCISCO (MarketWatch) -- Silverton Bank, N.A., of Atlanta was closed Friday by the Office of the Comptroller of the Currency, according to the Federal Deposit Insurance Corporation, making it the 30th bank failure of the year and the 55th since the beginning of the recession.

FDIC said it created a bridge bank, Silverton Bridge Bank, N.A., to take over operations. The bank did not take deposits from the public or make retail loans, but was a commercial bank that had 1,400 client banks in 44 states. At the time of the closure, Silverton Bank had about $4.1 billion in assets and $3.3 billion in deposits.