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Why Should we be Rallying?

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By FastMike
February 6, 2009

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"...Five hundred dollars!? Hmmm... that's almost a million!...", from the Three Stooges, 'Cash and Carry'

Dear astonished Fools :

I've been watching and reading whatever I could find this morning about the Employment Report and why the averages are rallying. What caught my attention was that the December number was revised downward, to 577,000+.

The unemployment rate came in at 7.6% and the expectation was 7.5%. In the UK, an industrial production number came in at a low, reminiscent of the 80's recession. Nissan motors has asked its government for help. The stimulus is has become a pork stew, and the bank rescue is going to take shape as a Federal Insurance policy, not to mention reports that the Treasury wants to convert those special 'Preferred' shares into common. California, oft referred to as the worlds 4th largest economy is on the verge of collapse.

The bad news, news that directly effects supply and demand, production and earnings, credit and payment and above all, growth, is still bad and getting worse.

I can go on, but I'm just repeating stuff that you METAR Fools already know.

Hence to the point : Why should we be rallying?

There's been a lot of talk about The People's Republic of China (a state controlled economy) being the one to pull the world out of this recession, hence an explanation as to why certain commodities are rising. On top of that, OPEC has set a price on a barrel of light sweet crude and cut production.

So this is good?

You mean if the PRC restarts its' insatiable demand for oil, metals, coal while the rest of the world banks are begging for cash for their respective industrialized economies (the free market economies), that this is good?

For the love of greenhouse gasses, if we have a cash and credit shortage in free market economies, and the PRC is driving the essential commodity prices up, this is helpful? And it's a government otherwise faced with removing the prosperity from a new middle class that might number in the hundreds of millions. And they're going to save the world?

I should think not!

There's an excellent post here at the Fool with a different take on the PRC boom.

Lastly, this all begs the question about this rally. I've heard and read so many explanations this morning I can only conclude that no one really knows. The most mention rumor is that mark-to-market might be suspended for toxic assets. So that causes a market rally.

By allowing a committee to determine the value of toxic assets, would make $500 almost a million, indeed.

All in all, it seems to me that if we're setting all sorts of downside records in earnings, with higher future earnings in severe doubt, then the current markets are very overvalued.

I'm all for a recovery, but a recovery can't be wished for. And I'm not wanting to see the worst, but facts are facts are facts. And the facts indicate that the underpinnings of this already battered market are eroding away, and could result in a reversal, triggered by a sudden realization the future growth at best, will be flat.

And above all, there are no quick nor easy solutions without having the economy recess while it happens. The risk in equities, is a bit much, for me at least.

Your cautious Fool,
FM