Let's Put Monday's Market Rally in Perspective

 |  Includes: DIA, QQQ, SPY
by: Michael Eisenberg

Watching the US stock market rally yesterday on Secretary Geithner's Toxic Asset Plan reminded me of the following scene from the Dan Aykroyd and Eddie Murphy movie Trading Places. Yesterday afternoon was about 2:08 into the scene below:

It is worth noting that the 19% upward move in the Dow since March 9th, while impressive, does not equate with a 20% downward move. You need to move up more to cover that loss from higher heights. It is also worth recalling that between 1928 - 1932 the Dow dropped more than 80%, but experienced multiple 20% moves to the upside along the way, including one big one in 1929:

Even if the Treasury plan for buying toxic assets works (which is dubious), many parts of the economy and business models are still fundamentally broken. The banking sector still has not addressed the management, technological and business model issues that brought them to this point (hint: it is not only greed and lack of regulatory oversight). The automotive sector will continue to bleed cash and innovation will be a longer process that needs time and focused investment in the future to propel us out of this mess. Stock markets are leading indicators, but they lead by 6-12 months max.
Let's see what Q1 and full year 2009 earnings bring us before buying more crap from CNBC entertainers. Let's also not forget the debt that now weighs down and could bring down USA Inc.
As you smiled at the run up in the stock market yesterday like the Dukes, do not forget to watch the Trading Places clip above until the end.