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Global stock markets surged on Monday. Were they delusional?

Many people believe the financial system is essentially toast. Banks spent more time selling each other garbage assets than assessing risk. Rating agencies traded principles for fees. Investment bankers traded caution for compensation. Hedge funds ran amok without supervision. The world’s biggest insurer gambled hundreds of billions, and lost. Equities and commodities were fuelled by speculation and leverage. Banking became a bubble and the system was so corrupt, unprincipled and unregulated that a bloodsucker like Bernie Madoff could feast in the open.

Shame. It’s a system deserving failure.

But it won’t happen. The markets know this, even as revulsion grows over AIG bonuses. And so, a buying frenzy.

Governments will not let one single more major bank fail anywhere in the western world. Unlimited billions in public money will go into propping up even the most questionable of the financials. More proof of that came this week, with the latest Obama bailout – another trillion to buy up toxic assets (they used to be called ‘mortgages’) from banks who should never have been dealing in them.

You may not like it. This may be patently unfair. Millions of people may lose their homes while insolvent banks are showered with money. But it’s gonna happen anyway. And this is why the first and most serious money to be made as the Great Recession enters the next phase will be equity investors.

I first said this some weeks ago, to great howling from the blog dogs.  Equity markets are leading indicators, just as real estate markets are lagging ones. The Dow and the TSX will regain their 2007 levels years before house prices get anywhere near their former frothy levels. The gains will not only be on the prospect of enhanced corporate profits as the economy improves, but they will come on the backs of subsidizing taxpayers. Like right now.

The Canadian market is ahead 18% since March 9th, and about where it was when the year began. Financials have gained 34% and, in the wake of the Suncor-Petrocan deal, energy companies have also surged.

News from the US real estate market was positive, with sales jumping 5% last month as first-time buyers gorged on a feast of foreclosures and cheap mortgages. Retail sales are higher, too. Even enough inflation to please economists. And, of course, there was $1 trillion Obama put into bonds last week, and other trillion into banks this week. Whatever it takes.

Whatever the debt mess that may await us in a decade, there’s no question current governments could care less. Nobody in power today is willing to have a depression on their watch and, besides, it ain’t their money. It’s yours.

Of course, the current rally could end up being a bear trap. The odds of that are overwhelming. But the sharp advance proves the market is now willing to focus on good news more than the bad. And why not? More crap will simply prompt more government spending – more assurance the system will not fail, more lubrication for a society which got too much avarice stuck in its gears.

Did your mom tell you honesty was its own reward?

She blew that.

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For Garth’s latest podcast, click here.

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81 comments ↓

#1 Da HK Kid on 03.23.09 at 8:31 pm

The Answer Is Still Deflation – Geitherns New Plan

Once again the hyperinflationists will be screaming at the top of their lungs over this plan. The plan is certainly worth screaming about, but not because it will cause hyperinflation.

Indeed, the real danger is that Geithner’s plan will prolong the agony further zombifying taxpayers by saddling them with debt that cannot be paid back, while doing nothing to spur lending.

The huge amount of US debt in conjunction with changing consumer attitudes toward debt, ensures that hyperinflation is not remotely in the picture.

All Geithner is doing is making the problem worse. Tim Geithner is the most dangerous man in America, and Obama is too blind to see it.

#2 Al on 03.23.09 at 8:32 pm

That would be a bull trap :0

Bear traps happen when the market is tanking.

I think we rally until May, clawing back to gain back half what we’ve lost since the top, then the final huge and inevitable plunge lower.

Based on what logic? — Garth

#3 double mike on 03.23.09 at 8:41 pm

Yep, crime does pay. And criminal negligence and incompetence pay even better. But truisms aside current market move is just a suckers rally. Big boys in sovereign funds won’t sit on their thumbs while Obamanator dilutes them left and right.

And by the way, capitalism is dead and therefore the U.S. of A. is gone. I hope this vortex won’t pull us along too deep.

Woof, woof.

#4 timbo on 03.23.09 at 8:46 pm

and to all those at fox news who think we are a bunch of weak rabbits.

http://www.youtube.com/watch?v=XcxKIJTb3Hg&NR=1

#5 Da HK Kid on 03.23.09 at 8:47 pm

Further,

I dont think this by any stretch solves the problem but getting the radioactive waste off the banks balance sheets, at the expensive of the taxpayers of course, is an attempt to try and stabilize the economy, it will not bring us out of what will be a horrible long recession but it may prevent the economy from collapsing.

There are too many problems beyond this banking problem that can only be resolved by asset deflation. Maybe this plan helps deflate the bubble like a series of silent farts instead of a huge ripping barn burner that stinks up the entire house.

Will it work and if it does more importantly what does this immense debt mean for America in the years to come.

#6 Herb on 03.23.09 at 8:52 pm

A regret, a suggestion,and a comment –

The regret: why oh why didn’t I take out a mortgage on the Brooklyn Bridge?

The suggestion: turn government over to the whizzards of finance and make them try to work what they have wrought.

The comment: we are so screwed! They already have taken over government and do not care what works or not, as long as they control the printing press.

#7 lgre on 03.23.09 at 8:55 pm

Government is doing nothing but rewarding these banks for bad behaviour. This is just telling the banks to do what they please and government will be there to prop them up..if you think that the banks have been greedy thus far, well that was just childs play.

if you are in the market, make your money and get out or you will be stuck holding the bag at some point. Spending trillions of dollars on a weekly basis is creating nothing but an artificial market with an overdebted economy..its not going to end well.

#8 Mike Hunt on 03.23.09 at 8:56 pm

We as a people have such short term memories. Remember the first (big) bailout package? $600 000 000 000.00 or so. The US House didn’t pass that one initially. There were staged demonstrations on the street in some areas. People wrote their representatives. They phoned. They emailed their friends. There was “outrage”. How long ago was that? October, 2008?

Now, a few months later, Obama declares “a trillion” bailout, and no one stirs. Who gives a sh**. Is there enough beer in the fridge to help me forget? What’s on tv?

I am sure that political parties have the best sociologists working on group think and how the masses will react. They know that any backlash will not be sustained for long. We like ‘being outraged’ but temporarily, until the adrenaline rush fades. Outrage of any real duration takes work…and effort. Politicians, or whoever controls their strings, know that all they have to do is keep their head down for a few days, and bring someone to task once in a while (*Auto execs flying private planes, B. Madoff, AIG execs getting bonuses worth 0.01% of what AIG got in bailout money taken away).

Watch the left hand folks…watch it closely…watch it wave …(as the right hand pilfers the people’s pockets).

Surreal. But very real.

#9 Future Expatriate on 03.23.09 at 8:57 pm

It’s not over until it’s over.

And it’s not over.

But one day, it will be.

#10 Bill-Muskoka (NAM) on 03.23.09 at 9:10 pm

Garth,

The so-called government is nothing more than a bunch of immature children who need a good session in the old wood shed with a razor strop!

The Commons: Greg Gutfeld, and other less important matters

The Conservatives have identified a loophole in the Speaker’s recent ruling against the use of Parliament’s time to launch personal attacks against political rivals—namely that it’s not a personal attack if you don’t immediately identify the individual you are defaming.

Loophole? Oh, I have a LOOPHOLE for all of them…The knot used is called the Hangman’s Knot! I can’t decide which is more repulsive Fox (Fatassed, Oblivious, Xenophobes) so-called News or these pathetic arseholes we have in Oddawahaha!

#11 Al on 03.23.09 at 9:12 pm

Best article I’ve read on what is happening with all of this on rollingstone.com, and written in an extremely entertaining way.

http://www.rollingstone.com/politics/story/26793903/the_big_takeover

#12 [email protected] on 03.23.09 at 9:20 pm

It is illogical for the market to go up now or even in the next six months. There is no good news on the horizon, nor in the short term future, this turnaround people lost jobs, money and RE values. The system is a failure and confidence in the system is lost. It would be really cheap for this to all happen in such a short time – but then again do today’s markets make any sense?

#13 North Vancouver Citizen Jr. on 03.23.09 at 9:24 pm

November 8, 1996!!!!

“”Hongcouver”” – Canada’s Asianised City

http://www.ericellis.com/canada1.htm

English was now spoken at home by just 43 per cent of residents. Some 32 per cent spoke a Chinese dialect, 5 per cent each spoke Vietnamese and the Punjabi of India’s emigrant Sikh community, and 18 per cent spoke “other” languages, mostly Thai, Japanese, the Tagalog of the Philippines and some European languages.

French, eastern Canada’s official obsession, was spoken by just 2 per cent.

#14 North Vancouver Citizen Jr. on 03.23.09 at 9:35 pm

>>>”Vancouver is clearly an Asia Pacific city now,” said pollster Angus Reid.

Vancouver is considered a safe place to store money (not in banks, but in real estate) and a good place to send children to school.”

“Vancouver is now a global city that is one stop within the Pacific world,

We are now the most integrated Asian city in North America,”

While Chinese in Toronto and Los Angeles tend to congregate in certain areas, says Yu, it is clear that every neighbourhood and school district in Vancouver has a large contingent of Chinese. It is now the norm.<<

http://www.canada.com/vancouversun/story.html?id=011b7438-172c-4126-ba42-2c85828bd6ce&k=44011

#15 ca on 03.23.09 at 9:39 pm

Garth —

What are you thoughts as to how long this bear rally will last?

Until it surprisingly ends. — Garth

#16 flota on 03.23.09 at 9:39 pm

I have always wondered if we are such a civilized society why do we have so many booms and busts. I guess the economy is run by the vikings. :)

#17 . . . fried eggs and spam . . . on 03.23.09 at 9:40 pm

Based on what logic? — Garth

I never knew business ran on logic, because people are not logical.

BTW, I also wasn’t aware that the IMF was now printing it’s own money — http://tinyurl.com/c3rsjd — but China’s Central Bank has proposed a new world currency.

#18 OttawaMike on 03.23.09 at 9:42 pm

This is almost surely a sucker’s rally.
*What happens when more bad debts appear on the bank’s balance sheets?
* Are you saying that the US govt. will just go through another round of buying up these assets?
*How long can this go on before even the most unsophisticated bank customer realizes his money may not be safe because the banks are still not properly capitalized?
*How long & how many employees will it take to tabulate the 2 trillion $ in bad debts for the private/public investors to purchase?

#19 Future Expatriate on 03.23.09 at 9:44 pm

#14- “surprisingly?”

OK, I’ll spoil the surprise. It’s going to end. Soon.

Reality bites. Hard.

#20 rory on 03.23.09 at 9:45 pm

Hi all …what I do not get is why hedge funds are still allowed to be non-regulated beyond the obvious reason – they are the power.

Obama is starting to look like he was bought and paid for – anyone got anything to say on this one ‘cuz I am usually wrong but in the ball park.

#21 catamaran guy on 03.23.09 at 9:54 pm

That is the signal,printing money,pixels on a screen,
little bits of confetti,
that will not translate to food on the table.

#22 flota on 03.23.09 at 9:56 pm

Very interesting historical account on crisis during Roman times. I wish they thought this at the university…

When we make a hasty survey of the Roman Empire to find the symptoms of decay there is brought to light as the outstanding feature industrial stagnation and commercial ruin. The year 33 A.D. was full of events in the ancient world. It marked two disturbances as the outgrowth of the mob spirit. The first was the remote province of Judea where one Christus (Christ) was tried before Pontius Pilate, was crucified, dead and buried. The other event was the great Roman panic which shook the empire from end to end. The consternation accompanying the latter died down and it was soon forgotten, but the murmurings of the former swept down the centuries until, bursting into flames, it enveloped the world.

A description of the panic reads like one of our own times: The important firm of Seuthes and Son, of Alexandria. Was facing difficulties because of the loss of three richly laden ships in a Red Sea storm, followed by a fall in the value of ostrich feather and ivory. About the same time the great house of Malchus and Co. of Tyre with branches at Antioch and Ephesus, suddenly became bankrupt as a result of a strike among their Phoenician workmen and the embezzlements of a freedman manger. These failures affected the Roman banking house, Quintus Maximus and Lucious Vibo. A run commenced on their bank and spread to other banking houses that were said to be involved, particularly the Brothers Pittius. The Via Sacra was the Wall Street of Rome and this thoroughfare was teeming with excited merchants. These tow firms looked to other bankers for aid, as is done today. Unfortunately, rebellions had occurred among the semi civilized people of North Gaul, where a great deal of Roman Capital had been invested, and a moratorium had been declared by the government on account of the disturbed conditions. Other bankers, fearing the suspended condition, refused to aid the first two houses and this augmented the crises.

Money was tight for another reason: agriculture had be on a decline for some years and Tiberius had proclaimed that one-third of very senator’s fortune must be invested in land within the province of Italy in order to recoup their agricultural production.

Publius Spintler, a wealthy noble man, was at the time obliged to raise money to comply with the order and had called upon his bank, Balbus Ollius, for 30 million sesterces, which he had deposited with them. This firm immediately closed their doors and entered bankruptcy before the praetor. The panic was fast spreading through out all the province of Rome and the civilized world. News came of the failure of the great Corinthian bank, Leucippus Sons, followed within a few days by a strong banking house in Carthage. By this time all the surviving banks on the Via Sacra had suspended payment to the depositors. Two banks in Lyons next were obligated to suspend; likewise, another in Byzantium. From all provincial towns creditors ran to bankers and debtors with cries of keen distress only to meet with an answer of failure or bankruptcy.

The legal rate of interest in Rome was then 12 percent and this rose beyond bounds, The praetor’s court was filled with creditors demanding the auctioning of the debtor’s property and slaves; valuable villas were sold for tiles and many men who were reputed to be rich and of large fortune were reduced to pauperism. This condition existed not only in Rome, but through out the empire.

Gracchus, the praetor, who saw the calamity threatening the very foundation of all the commerce and industry of the empire, dispatched a message to the emperor, Tiberius, in his villa at Capri. The merchants waited breathlessly for four days until the courier returned. The Senate assembled quicly while a vast throng, slaves and millionaire, elbow to elbow, waited in the forum outside for tidings of the emperor’s action. The letter was read to the Senate then the forum as a breath of relief swept over the waiting multitude.

Tiberius was a wise ruler and solve the problem with is usual good sense. He suspended temporarily the processes of debt and distributed 100 million sesterces from the imperial treasury to the solvent bankers to be loaned to needy debtors without interest for three years. Following this action, the panic in Alexandria, Carthage and Corinth quieted.

And so, under contion very similar to those existing in the Twentieth Century, business of the Roman Empire resumed its normal aspect and Via Sacra went its normal way, the same as Wall Stet has done on many an occasion after the storm has passed. How similar was the buisness of the world in that year…(Lightner, History of Business Depressions)

#23 Real Estate Deal or No Deal on 03.23.09 at 10:01 pm

Hi Garth,

I live in the east end of the GTA … Pickering.

I haven’t seen price deflation in low to mid end housing … when will this happen?

You said “Late Summer” due to a false Spring selling season …

Not interested in living in Oshawa … can you blame me … but other Durham cities aren’t suffering … yet?

How long is the wait?

#24 nonplused on 03.23.09 at 10:05 pm

The stock market collapse in 1929 took 3-4 years to play out with many powerful rallies, just as most stock market bulls have many pullbacks. So one should not get too caught up in the daily or weekly action, which can be noise. Unless you are a good enough trader to play the bounces that is.

A lot of people believe in inflation, a lot in deflation. But I believe what we are seeing is an unprecedented amount of experimentation by monetary authorities and the government, often knee jerk and with nothing but desperation and a novel theory to back the plan up. And it’s a new plan every week! This week it’s having the Fed monetize government debt. That has been tried before, always leading to a hyperinflationary collapse. But it hasn’t been tried in America and it hasn’t been tried with this monetary system.

I think the economy is a very complicated organism with many self reinforcing feedback loops. They are pulling on every lever sending every loop in to hyper-rotation. Thus, it’s not possible any more to make projections as to what will happen next, inflationary or deflationary, because we simply haven’t ever seen anything like this before. Ever. One must prepare for all possible outcomes. Put 50% of what you have in deflationary hedges, and the other 50% in inflationary hedges, and hopefully you will have 50% left at the end. Or gamble on one or the other and face a 100 verses 0 payoff. It doesn’t matter which one you bet on because nobody knows anything about where we are right now. You are swinging for the fence on a coin toss.

Thus, 50% t-bills and gold, 50% stocks and real estate, might not be a bad portfolio. Debt is deductive in the deflation scenario so if you have it you must subtract the amount you have from the t-bill/gold amount to arrive at your ratio and add it to your exposure on the stock and real estate side. So $50 of gold, $100 t-bills, $50 stocks and real estate and $50 debt is perfectly balanced.

(I am considering gold a deflation hedge in the above example. It will fall in price with everything else should we have deflation, but probably not by as much, maintaining purchasing power. It is an assumption. These days one can’t tell.)

But in any case, the government has to save the banks, even if it means inflation or deflation. Without the banks, we don’t have our electronic currency system, upon which all now depends. No electrons in the vault, no transaction system. The paper system just isn’t there anymore, or at least not to an extent where it can support commerce in the near term. They could re-establish it, but why? The electronic system is better when it’s working. I love pay-at-the-pump.

#25 Al on 03.23.09 at 10:08 pm

“Based on what logic? — Garth”

Hey Garth, my logic is simple, and this applies to the American market, but since we trail it here, it may as well apply here to. I think the American economy will get a temporary recovery from the fresh handouts, and will fizzle out soon after. As a trader, it’s based on a lot of things you may or may not agree with such as Elliot Wave Theory. A wave low at SPX 666. B wave rally retracing 50% of the loss, and the final plunge lower. It is simply human behavior and though the timing may not be accurate to the T, the outcome is no different. Don’t fall in love with the upside!

#26 ts harpoon on 03.23.09 at 10:14 pm

“Welcome to Fuff-Land Canada!!”

“A fuffle is an artful fake, an artifact specifically made to fool, beguile, seduce, or intimidate people into paying for it. Ideally, the initial transaction serves as the basis of a permanent arrangement, with the victim roped into an installment plan, which keeps the payments flowing even after the fuffle itself has crumbled into a pile of dust. ” more…

http://cluborlov.blogspot.com/

#27 smwhite on 03.23.09 at 10:16 pm

Markets swaying 3% – 5% a day in any direction isn’t rational, or a sign of good health.

I think some companies have pretty P/E and $ numbers, like PCA(got caught sucking my thumb on that) but there are still a lot of piggies out there that need to shed some weight.

Cutting jobs is the easy answer to instantly improving a corporations efficiency. Even with that big surge in the stock price of PCA, they admitted they will have to cut jobs in over lapping areas.

A lot of news is lagging and I believe that until this fall we won’t have a real idea whether were off on another bubble or replaying the “Lost Decade”.

I’ll hold onto cash for now. Corporate earnings and the immediate future is very suspect at this point. It will get better, but its going to be rough for the unemployed, under employed and under paid segment of the Canadian population for some time to come.

#28 Mike B on 03.23.09 at 10:43 pm

Like a teenager getting his first sexual explosion the stock market is jumping all over even the slightest glimmer of hope. Will it last? Not without a huge retrench very shortly. Those predicting the recent run up are far from prescient … things were low and inevitably they go up… no miracle prediction here. No way of knowing petro can would merge with Suncor. (Oddly my finance guy had pca as a buy on jan1 of this year) No way of knowing the Geithnerd would waste a trillion on propping up the banks . His goal is to get the banks lending again. Funny that. HK kid is spot on. This will only make things worse. It truly smacks of desperation and really makes the US look like Zimbabwe…
The amount of toxic assets far exceeds their obligation outlined today. Alt A and Option Arms will hit mid to late year China may get sick of losing money and buying T Bills … Ohh they already said that

#29 dotava on 03.23.09 at 10:56 pm

#23 Real Estate Deal or No Deal on 03.23.09 at 10:01 pm

If Garth doesn’t respond – I’ll – when people realize that having a Nuke in backyard is not that attractive – regardless that your job is to close. :(

#30 ts harpoon on 03.23.09 at 11:20 pm

Ten trillion abd Counting: March 24th PBS Online:

http://www.pbs.org/wgbh/pages/frontline/tentrillion/

What does a trillion look like? http://www.pagetutor.com/trillion/index.html

#31 The Tallyman on 03.24.09 at 12:03 am

Ya no matter how bad it gets Bernanke says he’ll just have his computer spit out the money to cover it.

The games been doctored and will keep on changing.
Governments won’t let the system fail but the rot is happening within the walls.

I kinda get the feeling we’re like frogs in a big pot with the heat slowly being nudged up.
And the greedy bastards won’t even have the decency to let us know when were fully cooked!

#32 Basil Fawlty on 03.24.09 at 12:13 am

Garth’s analysis sounds reasonable and there will be an endgame.
We now see the malinvestment created over the last 15 years, especially the vacant houses, decaying land developments and the excessive retail space, which is soon to be vacant. So the question arises what malinvestment will the next round of easy money create?
This is just simply insane economics or they are purposely ruining the worlds financial system. These monetization policies are not a long time cure, they are the road to Zimbabwe. Who could have imagined in their wildest dreams that elected officials could be so dillusional.

#33 Jay Currie on 03.24.09 at 12:58 am

Might be a suckers’ rally, might be a dead cat bounce, might be the bottom; but there are still plenty of shoes to drop.

The market is a leading indicator and the current trend suggests the end of the world is not upon us which is not to say we are about to re-enter the land of financial rainbows and unicorns.

Until US consumer demand actually picks up off the floor there is not very much driving the economy. And there are still the commercial property crunch and the personal credit crunch to get through. Is there enough of a discount built into the market to have taken those into consideration. Maybe. But maybe the real bottom is closer to Dow 4500.

We’ll find out.

#34 rick in Surrey on 03.24.09 at 1:28 am

Seems funny to me how everyone keeps on yammering away about the end of this recession in 2009 or first quarter 2010. Yet, nobody has once mentioned about how badly the ALT-A Loans($1.6Trillion value with an estimate rate of default of 50%-70%) are going to tear up the economy. Sub-Primes($1Trillion value) were the beasts that caused a lot of this crisis and their ugly twin sister is coming to the dance between now and 2011 when they are due to reset. It is funny how nobody mentions this, or how the public seems uninformed about that impending crisis. Let me guess “We didn’t see that one coming either” will be echoed in all the media. Personally, I feel deflation is going to be replaced by Hyper-inflation which will follow that event. No government will be able to print enough money to make it all go away and not face the reality of dillution of their currencies.

Garth, I know you don’t agree with the Hyper-Inflation theories but it is something I believe is a guaranteed result of all these bailouts. Do I think the U.S.A. will be in the identical situation as Zimbabwe, no. However, I do think they will be significantly dammaged by the coming events. This in turn will drag our economy down with it. It’s kind of like asking your boss for a raise when business is dead slow. No money in the bank, no raise. For Canada and the U.S.A. it is the same, only applied to trading. If they are broke, they won’t be buying our exports. Then watch the job losses pile up.

Oh well, I will just do like everyone else and close my eyes, click my heels together 3 times and say “There’s no place like home”…oh wait, that won’t work…like the rest of us, I may just get foreclosed on!

#35 Grumpydawgs on 03.24.09 at 1:40 am

Garth, a trend in motion will stay in motion until it stops. My vote for now is ‘bear trap’. Longer term however you are exactly right in writing that markets will lead an economy out of recession. The problem for most investors is getting the timing down. These recoveries can be arduous, tentative and very tempetuous.

Every market recovery is years in the making and there has never been a permanent short sharp recovery. It will be a process not an event. If you wait up for it , you’ll probably fall asleep and miss the whole thing.

There is every chance that another severe correction sooner than later and will take place when the “sell in May and go away ” mantra hits Bay Street media pundits.

A bull market tries to buck everyone off it’s back and historically only a few get anything out of it. The rest are usually broken by the fake signals and bad timing that most cannot endure.

#36 confused and a little crazed on 03.24.09 at 1:52 am

Suckers rally???

Sure why not…Is Gm in the black…No
Are people not defaulting on their mortgages….No
people will still leave.., their mortgage is worth more than the home and all they lose is their down payment ( 0-5%)
Has Bank of America and Citi written off all their bad assets…NO.

But i guess the 1 trillion dollars will fix all that…maybe.

let’s see what happens to GM on March 31.
March 31 is a big day. It’s fiscal year end for a lot of companies.

what we need is another Trillion dollars. we will give it to the bankers that have the most derivatives…they made such good choices last time.
But I am suprised the americans are taking this lying down. They are all packing heat. it part of their constitution to bear arms. Protect their homeland but in this case . the threat is inside and the victims are your children’s future…you know the small person who depend on aadults to tell him right or wrong

#37 Tony on 03.24.09 at 3:33 am

The short sellers were heavy last week at the Dow 7,500 level as could be seen on thursday and friday. Some were stung today at the 7,500 level. Should the Dow get anywhere near the famous 8,000 mark the short sellers will hammer the market to the down side for at least 1,000 points bringing it down to the 7,000 mark. This is about a 90 percent certainty. Earnings do not merit anything near the 8,000 mark as earnings were revised lower since the bogus rally last December when earning were thought to stay higher than what they are at the present. There is no sign of earnings getting better as this is written.

#38 Mike (authentic) on 03.24.09 at 5:12 am

I too was amazed yesterday at the markets. Amazed at the stupidity and greed of the market. The world marketed rallied hard, and on what? The banks got more money, again. And the US Federal Reserve (a private company!) printed more money, again. And the US Gov’t bought it’s own bonds, again. And devalued it’s currency, again.

Wow, that’s so much reason to have the markets go up.

It’s like the world wants to go back to impossible financial bubbles that very few can afford.

If we keep going this way then we will end up with a mass %age of new people into the proverty class and a few owning almost everything.

Hope that it’s a bear market trap, or this sick, critical patient we call the financial system will keep eats those “Supersized McBailouts” and will die of a massive heart attack.

Mike

#39 john m on 03.24.09 at 5:45 am

#20 rory on 03.23.09 at 9:45 pm..Obama is starting to look like he was bought and paid for – ———–my thoughts exactly,the fire and brimstone he preached towards exec. bonuses doesn’t seem to apply to AIG (He is sure trying to waffle on that one). Perhaps an investigation into contributions to political parties by companies receiving bailouts should be conducted (is this also not misuse of tax dollars?)—i understand from what i have read there is quite a tale to be told in that regard…….hmmmm

#40 Herb on 03.24.09 at 6:50 am

The “rescue” in a nutshell:

Washington is now borrowing itself in order to get consumers and homeowners who are already over-indebted to spend and borrow more. Stimulus will just create bigger debt burdens.

Diane Francis, “Worries about rescue plan”, at http://www.financialpost.com/opinion/story.html?id=ab8e7487-957e-4ecb-b1c7-0b6660937f04 (emphasis added.)

#41 Herb on 03.24.09 at 7:02 am

In case you missed it, it’s not to be missed: our most celebrated financial forecasters eating crow on The National last night –

http://www.cbc.ca/national/blog/video/politicseconomy/the_prediction_business.html

#42 pbrasseur on 03.24.09 at 7:11 am

This is not a suckers rally (which dosn not mean the market cannot bounce up and down a few times before taking off).

This is the beginning of the next bull market. The market can see the end of this recession and the tremendous growth potential of the world economy, plus all assets will pickup value (in $ term) as currencies lose value.

If you got money to invest now is the time.

#43 The Other David on 03.24.09 at 8:15 am

Canada’s 10 most struggling housing markets
http://finance.sympatico.msn.ca/Banking/Mortgages/most-struggling-housing-markets.aspx?dub-gallery-photo-number=1

#44 Jonathan on 03.24.09 at 8:31 am

Rising interest rate update:

Falling demand for US currency. I’ll clarify that I’m not calling for a collapse of the US dollar, just at a minimum a significant reduction in demand for greenbacks. This will lower the value of the US dollar, thus lowering the value of existing bonds. US will have to raise interest rates to attract more investors back in to US dollar denominated assets.

http://online.wsj.com/article/SB123780272456212885.html

#45 dd on 03.24.09 at 9:11 am

I know a couple people how that are layed off and some work 80% instead of layoffs. I can see it getting worse and don’t see any positive leading indicators yet.

#46 - verisimilitude - on 03.24.09 at 9:17 am

Based on what logic? — Garth

I don’t know about his logic Garth but I can see yours – taking both sides of a trade. Bull or bear what are you calling? Show your colours rather than hedging your bets, stand up to the bar, be a man.

Of course, nobody can call tbis scene, day-by-day. But I have said the equity market will regain lost ground years before real estate does, and be the leading indicator of recovery. What about that do you not understand? — Garth

#47 dd on 03.24.09 at 9:21 am

#35 Grumpydawgs

“A bull market tries to buck everyone off it’s back”

True. It is the investors that are fully invested in the worst of markets that would more than likely make money. It is just sitting through the roller coaster that is sickening.

#48 canuck99 on 03.24.09 at 9:31 am

Did you know the Fed tried to this all before during the Great Depression? Didn’t work then. Won’t work now.

From “Reflation”, an article from the April 25, 1932 edition of Time Magazine:

Plans for a third enormous national credit pump lay last week before the House Banking & Currency Committee. In January this committee helped design Reconstruction Finance Corp. to pump $2,000,000,000 of Federal funds through the nation’s banks into Industry. …

The rest of the article can be found here: http://www.time.com/time/magazine/article/0,9171,743610,00.html

#49 Bruce on 03.24.09 at 9:45 am

EXCELLENT! Absolutely brilliant! I couldn’t have said it better myself. Matter of fact, I watched the markets with wry amusement yesterday, nearly laughing myself into hysteria. It was a nice spectacle to say the least. Although I have some disagreements with Garth’s predictions as to where we’re heading, I think he got it right for the most part.

My God, what a bunch of idiotic jackasses. HOW STUPID have we, as a human race, become? Are we really that gullible and naive to think that this plan of Geithner’s is actually going to work? Did anyone even READ the fine print? You Americans just got ass-raped and you fell for for it hook, line, and sinker.

Of course we Canadians are just as bad. Our national deficit this year alone will be to the tune of $64 billion. Everyone I know is either broke or teetering on the verge of bankruptcy. Most of us are only one or two paychecks away from financial ruin, but what the hell. It’s all fiat money, remember? Essentially, what we’re carrying around in our wallets(besides our myriad of credit cards)is just paper. No different than the same stuff you flush down the toilet every day. But hey, don’t take my word for it. Do your own research and draw your own conclusions. Everything they ever taught you in school with regards to how the financial system works was a huge LIE.

In summary, I see two things happening this year: Either people will believe that Geithner’s plan just might work and we start developing a false sense of security or two; Geithner’s plan will completely backfire(as I fully expect it to), leading to a global crash the likes of the world has never seen. When that happens, I’ll leave it your imagination the consequences that may follow. Contrary to what some may believe, Monday’s rally was NOT a good sign. Enjoy this little peak of excitement while it lasts folks. The calm before the storm.

#50 Peter @ Canadian Banks on 03.24.09 at 10:09 am

#2 Al on 03.23.09 at 8:32 pm

That would be a bull trap :0

Bear traps happen when the market is tanking.

I think we rally until May, clawing back to gain back half what we’ve lost since the top, then the final huge and inevitable plunge lower.

I agree that this is nothing more than a bear rally. Enjoy the illusion while you can :).

#51 dekethegeek on 03.24.09 at 10:40 am

As the Reichmanns’ discovered in the early 1980’s with their failing “Canary Warf redevelopement project in London”.
When you owe billions the banks cant afford to foreclose.
I guess the banks and insurance companies have taken that lesson to heart and moved on to “trillion ” dollar bailout with the Feds as the backers.
So who are the idiots, the politicians for allowing this mess in the first place or the bankers who only live to suck money out of any orofice they can find.
And they say Vampires are vicious..

#52 Ben's a Clown on 03.24.09 at 10:44 am

“Of course, the current rally could end up being a bear trap.”

It is a bear trip. Don’t fall for it.

Hope it lasts long enough to make back some of my losses, then I’m out. Gold, silver, oil & gas, and lots of stored food for me.

#53 pacific on 03.24.09 at 11:36 am

Thought you might like this:

http://www.wordle.net/gallery/wrdl/684715/http:–www.greaterfool.ca-

#54 rick in Surrey on 03.24.09 at 11:57 am

Here is a new article in Rolling Stone Magazine. It describes all that has happened very well and lays it out there for the everyday Joe to read and comprehend. Hats off to them for having the moxy to print it! It is a must read for sure…

http://www.rollingstone.com/politics/story/26793903/the_big_takeover

#55 - verisimilitude - on 03.24.09 at 12:02 pm

Common Garth you spend your blog boosting the market and then add a rider at the end that this could be a bear trap (actually like Al says a bull trap). This market could also do a ‘Japan‘ which as I see it could be very likely – you know, the L scenario (or D for those not faint at heart). You may know real estate and how to be a sharp trader and call everyone who isn’t one a fool, but my grandmother in her dotage could have told me that there will be no real estate market till the market recovers , that is really hot ‘no news’ news.

From my end I will predict that the current attempt to unplug the credit market will not increase the use of credit. There is no demand and that trumps any market recovery let alone real estate. The day they start pumping money in at the bottom rather than from the top I will start investing in the market, till then it is cash, treasuries and when we ‘bottom’ farm land.

BTW I enjoy you and your site, I just think you are off the mark on a lot of points.

#56 Glenn on 03.24.09 at 12:09 pm

“Of course we Canadians are just as bad. Our national deficit this year alone will be to the tune of $64 billion. Everyone I know is either broke or teetering on the verge of bankruptcy. Most of us are only one or two paychecks away from financial ruin, but what the hell. It’s all fiat money, remember?” — #49 Bruce on 03.24.09 at 9:45 am

Is…is that humility? A firm grasp on reality…from a CANADIAN?! No sanctimony or the patented “were not like America, were better, thus it cant happen here” attitude? There may be hope after all!

#57 TheComingDepression on 03.24.09 at 12:22 pm

ABC news with Gerald Celente: 9 months to the GREATEST DEPRESSION:
http://thecomingdepression.blogspot.com/2009/03/abc-news-gerald-celente-depression-in-9.html

Ron Paul: We will have 15 Years of depression

#58 Got A Watch on 03.24.09 at 1:31 pm

The current rally can last for a few weeks or months, but it is not the bottom, IMHO. I think it will be over by mid-April, myself.

I played it long, as a day-trade. Investing, no way.

After so many months of bad news, there is a ‘bad news fatigue’ that sets in. People start to ignore more bad news, and seize on any good news, no matter how feeble.

Even Bearish traders see the rally and jump in, not wanting to miss the ride. Long siders think it’s the bottom, and pile in.

The market was due for a retracement rally anyway, nothing moves in straight line. Many huge rallies during the ’30s too, but the market ended up bottoming for real at -89% from peak valuations.

Logic and fundamentals only figure in over the long-term of years and decades. In shorter time frames, it is investors perceptions, how they feel about it, that drives the markets. Any market is just the sum of the humans in it. Humans program the black-boxes too, based on many of the same assumptions flesh and blood traders have.

It’s all the ‘madness of crowds’ on any given day, and that mood swings wildly back and forth.

#59 dd on 03.24.09 at 1:38 pm

#57 TheComingDepression

…ABC news with Gerald Celente: 9 months to the GREATEST DEPRESSION … Ron Paul: We will have 15 Years of depression…

Depression is front page news now. Must almost be the time to buy stocks.

#60 Future Expatriate on 03.24.09 at 1:56 pm

Shaping up just like the most pessimistic of us called it; several decades of GreatEST Depression before the equity markets come close to recovering, with housing lagging as Garth predicts.

Makes you almost think it was all a plan, doesn’t it?

#61 TheComingDepression on 03.24.09 at 2:20 pm

#59, there’s always a few people in denial, your obviously one of them that believes everything will be OK. You have China wanting to get rid of the US dollar, you have the US going to triple the debt over the next few months, you have OIL going to go up big time. You have India producing a $2000 car that will send OIL/Pollution up insanely. You have unemployment raging up like a stampede, businesses closing, housing collapsing, ponzi schemes everywhere, Governments lying about everything..Yes lets go and buy some stocks..duh

#62 Bob Bagina on 03.24.09 at 2:36 pm

Silly peasants debating the affairs of their lords.

Peasants figured out the matters of their overlords and were doing pretty well, so their masters changed the rules of the game and restocked their coffers.

A plague on both your houses.

#63 North Vancouver Citizen Jr. on 03.24.09 at 2:53 pm

Depression?

Ontario will suffer the deepest Recession in many decades…..and Quebec will align itself with France.

…Certainly not in Vancouver/Hongcouver…the next Financial/Trade/Leisure capital of North America.

#64 gold bug on 03.24.09 at 3:51 pm

Garth writes: “…the equity market will regain lost ground years before real estate does….”

I don’t think history’s on your side, big guy.

People need shelter. For some reason, they’re obsessed with owning it. Real estate may remain, on average, priced below the peak (or even where we are today) but sooner rather than later people start piling into it again.

The stock market, on the other hand, nobody needs. it would be one thing if you could buy and hold, and retire 40 years later up 6% annually, with nary a lost night of sleep.

But that’s hardly the case. The stock market is in the midst of erasing a generation of wealth.

Don’t know about anybody else, but my Abitibi shares make for lousy shingles and my Nortel stock is [email protected] drywall.

If history is our guide, the stock market will be recovering its past peak sometime in the mid-20s, while by that time we’ll have gone through another cycle or two of real estate, depending on where one lives.

#65 Ben's a Clown on 03.24.09 at 3:57 pm

Gerald Celente ruins my day every time I listen to him. Garth Turner gives me hope. Unfortunately, I believe Celente more than Turner.

#66 gold bug on 03.24.09 at 3:59 pm

My other prediction: Once the government figures out that capital injections and Bad Banks and corporate welfare, etc., aren’t enough, it will establish cash kitchens, where the jobless, creditless, mortgage-buried, cash-strapped voters, errrrrrrr, citizens will line up for their monthly alotment of paper bills.

Nobody will complain just like not even the most die-hard free-market libertarian will complain when its his job getting papered over by the federal government. Political ideology is fine, but when it all boils down a man’s gotta provide.

Yes, there will be blogs that decry the fiat madness. Like dailyreckoning and financialsense, where writers have been shouting “the emperor has no clothes” for at least a decade.

Then, when monthly cash handouts no longer keep up with merchants’ changing prices, the cash kitchens will be open weekly. Then daily. Then phhht. No more currency.

Call me a gold crank. But history is 100% on my side.

One Hundred Percent.

Denying it doesn’t negate that basic fact.

#67 ts harpoon on 03.24.09 at 4:54 pm

Reality Check: Death of Consumption

“Soft” depression…if consumers pull back what happens? We are drowning in debt…Depression defined
“all about a de-leveraging process that is about to unfold in the next 3-5 years…” see:

http://www.worldenergysource.com/wetv/

#68 TheComingDepression on 03.24.09 at 5:14 pm

Peter Schiff this is just the beginning:
http://thecomingdepression.blogspot.com/2009/03/peter-schiff-this-has-just-started-and.html

Check what China is doing with the DOLLAR. Times are changing and FAST! If you don’t believe we are going into a DEPRESSION, you will soon.

…if you have anything to do with it. — Garth

#69 Dave on 03.24.09 at 5:28 pm

Then, when monthly cash handouts no longer keep up with merchants’ changing prices, the cash kitchens will be open weekly. Then daily. Then phhht. No more currency.

Call me a gold crank. But history is 100% on my side.

One Hundred Percent.

Denying it doesn’t negate that basic fact.

——————————————————

you’re insinuating hyperinflation correct? I think we’re in for some inflationary times, however, why didn’t the bailouts of the 1930’s result in inflation or why didn’t Japan experience high inflation in the 1990’s during the lost decade and the bailouts that came with it? This is something I cannot grasp.

I wish people could explain theories further rather than say “hyperinflation is coming, get ready to buy gold!”

Fiat currencies are crazy. It just seems that every hyperinflation that occured in the past 100 years occurred after a war which were times of increased economic activity. How is this going to happen in the next few years? I don’t see people going out and spending like crazy, I don’t see a world war on the horizon, so how is hyperinflation going to get us soon? People are scared and are trying to save. The only high inflation we’ve experienced during peaceful times was during the 1970’s when we veered away from the gold standard.

Nobody explains what happened in the past, I”m not sure how they come up with the basis for the future.

#70 Dave on 03.24.09 at 5:31 pm

The stock market, on the other hand, nobody needs. it would be one thing if you could buy and hold, and retire 40 years later up 6% annually, with nary a lost night of sleep.

—————————————-
and you lost credibility right there. Showing your true colours as not being able to grasp the financial world around you.

The stock market doesn’t solely consist of companies that make Ipods and blackberry’s. You’ve been relegated to part of the herd in my books

#71 Dave on 03.24.09 at 5:37 pm

After so many months of bad news, there is a ‘bad news fatigue’ that sets in. People start to ignore more bad news, and seize on any good news, no matter how feeble.

It’s all the ‘madness of crowds’ on any given day, and that mood swings wildly back and forth.

——————————————-

just by reading the above , I know what you’ve been reading! ;)

#72 . . . fried eggs and spam . . . on 03.24.09 at 5:40 pm

Zimbabwe dumped the US$ and switched to the SA Rand a few days ago, lopped a few zeroes off hyperinflation rate and Bob’s-Yer-Auntie — country is almost back to normal again, complete with a dictatorial thug in power.

A good country to see first-hand what hyperinflation has done to people. Shades of things to come, with other countries switching allegiance to the Ruble / Yuan / Euro, anything away from Uncle Sam?
*****
Agree with Garth when he says equities will rebound first, well ahead of anything else but take a slightly different view on the timeline.

Because of the retiring / laid-off boomers who need EI, welfare to help them — because they couldn’t be bothered to save for a rainy day — the 20-somethings college / university grads — who are finding it tough to find decent jobs, etc., I figure the downturn will last several years yet.
——
The IMF says the downturn will engulf the entire world, but I’m curious — what of people who live in obscurity, such as the Amazon, aborigines from Oz, African natives,etc. — folk who have no interest in worthless material junk?

They won’t be affected, as they already know how to live with, and off the land. — http://tinyurl.com/cp5x48
——
Interesting to see how “doublespeak” works, sheeple are fooled again. — http://tinyurl.com/dj5yn9

“This rally began with the profitability assurances of Citigroup’s CEO, a repeat of last years ‘Assurances’ (which were lies) and will soon end with the announcement of the proposed purchase of troubled assets by the Treasury Secretary, another repeat of 2008.”

#73 Dave on 03.24.09 at 5:48 pm

I know a couple people how that are layed off and some work 80% instead of layoffs. I can see it getting worse and don’t see any positive leading indicators yet.
——————————————-

you’re assuming Canada matters in the grand scheme of things. I’m assuming you’re Canadian and the people you know are Canadian. The stock market doesn’t depend on whats going on with us northerners.

#74 Investx on 03.24.09 at 5:52 pm

63 North Vancouver Citizen Jr.:

“Ontario will suffer the deepest Recession in many decades…..and Quebec will align itself with France.

…Certainly not in Vancouver/Hongcouver…the next Financial/Trade/Leisure capital of North America.”

It’s bad enough that you’re annoying and practice poor grammar (…), but could you at least support statements like those above (France-Quebec)? It’s scary too think you are an adult.

#75 TheComingDepression on 03.24.09 at 6:52 pm

…if you have anything to do with it. — Garth

Come on Garth, I’m just relaying the facts. Just getting the sheep prepared. Since I am the master of doom I might as well do it well. At least you can make the sheep feel good with your “facts”..”NO DEPRESSION” ( based on..? Please explain, besides the Gov’t won’t allow one..LOL). A lot of money to be made with this DEPRESSION coming

#76 rory on 03.24.09 at 7:04 pm

#74 Investx

Thinks about what NVC Jr. is saying about a western Canada state …2 world-class ports with short routes to Asia (3 if we include Churchill to access Europe) commodities people want (oil, gas, wheat, beef, forestry, uranium, potash, etc) as opposed to cars and more cars.

They have mild enough weather to grow vegetables year around (greenhouses in lower mainland), fruit in the Okanagan (or wine to keep the populace happy), and long and cold winters (or rain) to keep the less hardy away. No province threatening to leave confederation (as in holding a knife to our throats). This is just a short list without even trying hard.

You tell us why westerners’ need the rest except we like the concept of Canada …I am sure others would love be in our position. I am not saying we should dismantle Canada but you can make a very good case for NVC Jr. point of view. Yes, he can be a little annoying ‘cuz he keeps repeating the same mantra but he just may have a point – maybe he is Preston Manning …lol.

#77 bumbum on 03.24.09 at 11:19 pm

“Why Banking Bailouts, Buyouts, and Nationalizations Can Only Prolong America’s Second Great Depression And Weaken Any Subsequent Recovery” by Martin Weiss

http://howestreet.com/articles/index.php?article_id=8979

US govt are spending roughly 13 trillions on bailouts and it may still not be enough.

#78 Dave on 03.24.09 at 11:49 pm

Check what China is doing with the DOLLAR. Times are changing and FAST! If you don’t believe we are going into a DEPRESSION, you will soon.

—————————————————-

what is China doing with the dollar? you realize they’re also owed a lot of dollars? they’re not going to flood the U.S with the dollars they’re holding because they’re owed a lot of dollars as well….are you understanding this?

When you’re in your gutter, do you ever take the time to look at the stars?

#79 CS on 03.25.09 at 1:16 am

IF Gerald Celente is right, and the USA is headed for ‘the greatest depression’ marked by tripled unemployment, food wars and tax revolts by 2012, would Canada follow suit?

#80 Future Expatriate on 03.25.09 at 1:50 am

#69 “…I don’t see a world war on the horizon,”

Good Lord Dave, what planet are YOU living on?

What do YOU think is going to happen when Israel nukes Iran?

I know. A cakewalk. Obama’s “SMART” cakewalk war.

#81 Future Expatriate on 03.25.09 at 2:21 pm

#79, look at Garth’s latest post and read the comments. Celente IS right, and the Canadian tax revolt has already begun.