Rah-rah, the rally

You have of course heard about the recent large rally in the financial markets? The rally feels good to me. This is because it is based on strong and positive news, rather than just “bargain basement” price taking. I also like the rise in asset prices because the financial markets were strong on Monday in response to Treasury Secretary Geithner’s toxic asset removal plans, and much more importantly, that was in the face of the Congressional plan to tax bonuses of companies that received TARP monies. Had the markets fallen in response to the bonus taxation plan then it would have been an indication to me that the old ways of doing business were still too precious and that financial institutions were not yet ready for real change and progress. But the markets have been up! I am also comfortable with this rapid increase in values because there have been some days where there has also been some sell off and decline. And again, that was in response to somewhat bad news. This is a good sign because it means that people are behaving rationally and that some of the panic has dissipated. Amen!

However, I must mention that I am still concerned about several things. First, first quarter earnings season kicks off in about 2-3 weeks and I am certain that there will be some negative surprises from major firms in there. It will be interesting and necessary to see how the markets respond to that negativity. Next, first quarter economic statistics are going to be released, too. Count on lots of bad news there, too. However, I am guessing that the numbers will positively exceed expectations. But there is the chance that some of those numbers are very negative and unexpected. If so, watch out! Lastly, we still are not getting any sense of the international picture and how damaged Europe, Japan and China are through this whole mess. A big portion of the stock market bubbles of the dot.com era and the real estate froth-era came from foreign investors. It’s not clear yet how their economic situation will affect their liquidity situation and consequently the financial market situation. These issues are all on my radar screen.

In the meantime I have to ask a rhetorical question of each of you: did you end up buying anything over the last 2 months? If so, you likely have a nice and hefty profit at this point. Congratulate yourself for being bold and courageous in the face of very grim financial market performance.

Be well everyone!

Jason