The Undefinable, Unstoppable Bull Market of 2009

2009 has seen a vicious move up across the equity markets. There have been some rare pull back days, but the advance has been nonstop for the most part. Sectors across the entire spectrum have rallied. Key breakout areas are within sight and then who knows how far this toro could ramble.

With such a broad based move to the upside, one should be able to discern some reason for the action. Reading across all kinds of media I have seen various reasons given, all unrelated to each other and isolated islands of thought. Putting it all together I have my reason for the 2009 Bull Market:

I have absolutely NO idea

I am not using sarcasm here. That will come later. I just cannot put together a valid reason for the rally as nothing adds up.

Take a day like Friday for example. Pretty quiet until the last 30 minutes or so, and then a huge gap up right into the close. I can remember a time when nobody wanted to hold over the weekend because you had no idea what kind of news was going to come out. Now there is a rush to grab for the two day break. Either there is some real confidence out there, those in the know are tipped that any news will be good, or maybe a Friday up day looks nice. Who knows?

Tyler Durden at Zero Hedge loves to look at this kind of stuff and here is his take on Friday's action:

Going back to today's ridiculous close, the chart below shows it all: the complete tape painting volume spike at the very end of the day speaks for itself. And as computers now simply issue forced stock recall orders to each other, painting the tape wet with manipulative intent and volume spikes into the last 20 minutes of trading every day, their human creators are left on the sidelines, trying to outshout each other as to the reason for why the market keeps rising while the economy keeps tumbling.

Is there ever going to be any transparency in this market again?

That was some move in the last minutes of trading.

The late 90s boom was due to IT overspending and unbridled hope in the Internet. The early 2000s boom was predicated on real estate values and all the associated spending that flowed from that, enabled by free credit. Those two bull markets were easy to see in real time, this is not hindsight kind of reasoning.

Today's bull market seems to be built on buying stocks. I am serious, and don't call me surely.

The vast bulk of current trading is being handled by the big boys playing paint the tape. The hope is probably that a market that has risen enough will collect more boats, or something to that effect.

There is some reason behind the buying. I think the theorem goes something like this;
-When all stocks were going to zero, the DOW was at 6600 and the S&P was at 666
-When the credit boom was at full throttle the DOW was at 14,000 and S&P was at 1500
-If you split the difference right down the middle you arrive at DOW 10,300 and S&P 1083
-This seems like a fair compromise

I know, very scientific. This would be my guess and so those would be my upside targets.

The problem with this kind of dart shooting exercise is that there are real realities that have to be confronted:
-Unemployment is still going up. A lot. While the rate has slowed by some weird second derivative amount, the numbers are still shocking
-Foreclosures, of course, are tracking the jobs and are set to skyrocket as well
-Earnings right now are still too optimistic and the numbers are being met by, drum roll, staff cuts. This too will run out of usefulness

Those are three big ones that come to mind. There are of course plenty more.

So I hereby name the 2009 Bull Market the "Split the Distance Bull" as the exact middle from the bottom to the top is being raced to with abandon. Just remember to abandon ship when we get there.

Comments

[Paul Stewart:]

The reason is very simple. Trust. The market pretty much across the boards sold off on the basis of lost trust and indeed fear. Money went into the mattress. It did not move from one place to another in the market. And the mattress is stuffed.

Now, people are getting the sense that the worst is over. Indeed it was never as bad as the depth to which it went. But that is not a rationale thing that happened, rather it was emotional. So money is coming back. Not all and not everyone. But many with some money from their mattresses. The early ones. And with their return, others will follow. So it could be volatile, it could be soft, it could be a side-winding period for a while. However, as the money comes back, the prices will go to true value.

There is no story on the mattress. No story on the fear as much these days. But it is on the minds of most, including on my mind. Should I put the money in or not. I have been braver than most and kept my money in. I am still down some, expect that will be corrected within another 6 months. Certainly in a year.

The trend is truly a function of the demand for financial instruments. And that demand is a function of trust in them. I might add, we will see more of a bull market, but based on real value and not based on leveraged investors and a notion that the market can only go up. That era has passed for a generation.

May 30 06:17 PM

[random guy:]

There has never been a "bear market rally" or a "dead cat bounce" of 36%. So let's just stop calling it such.

The question isn't why the market is rallying to this point. That one is easy to answer The question should be, why did it get so low in March? There was no justification for 670 and much of this rally is just a correction from that absurdly low level.

May 30 06:25 PM

[expat in China:]

The trillions of dollars printed are not liquid to the engine if the economy and are reserved for crisis management first to stabilize the financial system (12 months), restructure a couple of car companies (6 months) and wait for the stimulus money to reach the economic engine in 2010.

The months of up side volume buying (spike programs) as required to continue the step up of index averages was executed exactly as Obama demanded. The bankers went to Washington and in exchange for free rape and pillage of our nations wealth they had merely to manipulate financial markets, rating agencies and asset valuations.

If you had this change management to do your timing plan would also be 24 months, It is to early to pay back the bailouts and also possible to remove the flood of money from the system and expire some new debt while inflating away some old debt? It is likely that the bill from Goldman will be over 1 trillion.

These project tasks do represent a shift of socializing, criminal activities and degradation to your functional economic model. It is quit possible that Chevez meeting with Obama was to provide the end game play book to take from the rich and give to the poor sending the country into years of inefficiencies and collapse.

May 30 07:59 PM

[Sober Realist:]

As long as the unwashed masses believe the spin, then the market will rally. The biggest gaping hole for the world economy is this:

There is no country, not China, India, Europe or any other, that is in a position or has the financial resources to pick-up the slack left by the retrenching, tapped-out US consumer. The engine of global growth is missing. This is a fact.

China has been looked to as the one to pull the world up an out of the collapse, but China's growth has been based on its exports and the FDI(Foreign direct investment) and not its consumers. Exports are the true engine of the Chinese economy, equal to more than 30 percent of GDP. Exports fell 17.5 percent in January, compared to the same month a year earlier. They plummeted 25.7 percent in February, 17.1 percent drop in March, and 23% in April.

The private-consumption share of developing Asia's overall GDP fell to a record low of 47% in 2008, down from 55% as recently as 2001. In other words, Asia remains an export machine. Developing Asia's export share rose from 36% of pan-regional GDP during the financial crisis of 1997-98 to a record 47% in 2007. And recent research by the International Monetary Fund shows that Asian exports continue to be underpinned by demand from consumers in the industrial world, especially from the U.S. Despite a surge of trade within Asia, the bulk of these intraregional flows have been concentrated in parts and components that go into finished goods eventually consumed by developed economies.
www.time.com/time/prin...

When the international market shrinks, China shrinks no matter how much artificial stimuli sugar they through at the problem.
------------------
May 30 '09(Bloomberg) -- World Bank President Robert Zoellick warned policy makers that fiscal-stimulus plans are insufficient to turn around the “real economy” and rising joblessness threatens to set off political unrest across the globe.
-------------------

"The bottom line(for China) is that almost none of the official stimulus package is actually going to help China’s industry, faltering as it is due to lack of export orders. China’s vector for that effort originates not in direct government spending, but in loans from the various state banks. From January to April, Chinese bank loans exploded to more than triple their already high rates. Nearly $1 trillion was lended during that period — more than in all of 2008 — in order to force-feed the capital necessary into the system to keep China’s legions of factories from releasing armies of unemployed citizens.
But a policy shift that sudden and holistic cannot be done with much oversight — and it wasn’t. China is more concerned about maintaining employment than about ensuring that money is used efficiently. And the result of such a sudden surge in loan-granting will inevitably be a mounting of nonperforming loans that will eat at the very heart of the Chinese financial system (a similar problem is what brought down Japan in 1991).

....The government has offered tax breaks and rebates to help exporters keep exporting whether profitable or not. It is offering incentives and threatening punishments for companies to retain workers whether necessary or not. And it is urging banks to loan more money — and the first three months have seen a massive increase in domestic loans to companies (though primarily to state-owned enterprises, not the private sector) to help them fulfill their employment and export requirements — whether profitable or not. At the same time, real estate prices are falling. On the surface, this may seem positive for those looking to buy. But it may have a major impact on Chinese companies that have been using inflated real estate as collateral for loans. So even as China is showing economic activity, it may be digging a deeper hole than before the current crisis.

The problem for Beijing is that the days of 12 percent and 13 percent GDP growth look to be over for quite a while. Moreover, China’s recovery remains heavily dependent upon a major recovery of global consumption (particularly in the United States). But that is by no means guaranteed. While there are signs of hope for the U.S. economy, they do not necessarily mean consumption levels will surge again as if nothing has happened. Even a U.S. recovery in the second half of 2009 followed six to 12 months later by Europe would leave China’s recovery another year or more in the future. Which leads to the dilemma Beijing faces." -Stratfor.com

Analyst Michael Pettis has recently proclaimed that "future historians will mark 2008 as the year that the development model that has driven much of Asia’s rapid growth for the past two decades went bankrupt."
www.carnegieendowment....
seekingalpha.com/artic...

Analysts who keep close tabs on how China is faring at creating a strong domestic consumer market warn that the country faces serious obstacles on the road to Western-style consumerism, and it could be decades before these are cleared away.
“There's nothing that really supports a consumer society in China right now,” said Jennifer Richmond, China director with Stratfor, a global intelligence company. “In 10 years, we might see the seeds of it. But the likelihood of the Chinese supplanting the American consumer is quite slim.”
China's consumers account for about 35 per cent of GDP and just over 3 per cent of the global economy. By contrast, U.S. consumers still account for two-thirds of the vastly larger U.S. economy and about 17 per cent of global GDP. “The mathematics are daunting,” said David Rosenberg, chief economist and strategist with Gluskin Sheff + Associates in Toronto. “For every 1 per cent decline in U.S. consumer spending, Chinese consumer spending has to grow by 5 per cent just to keep things where they were.”
www.theglobeandmail.co.../

There are those who have been trying to warn us for a while now that China's middle class was merely an illusion. In a 2007 article for BusinessWeek, Arthur Kroeber, editor of China Economic Quarterly, stated blankly that, "China doesn't have a middle class.". He blamed deceptive figures released by the Chinese government for our misperception of the situation, and estimated that total purchasing power in China to be half of what was being reported at the time. And such purchasing power was concentrated among the well-off in a few privileged urban areas. "As far as significant retailers are concerned, out of China's 1.3 billion people, 1.2 billion simply don't count," he stated.

Such views were recently echoed by David Goodman, professor at the University of Technology in Sydney. Goodman argues that the "middle class" that we see in China's urban centres are an exclusive elite forging ever-closer links with the ruling Communist party. "They are neither independent of nor excluded from the political establishment, which on the contrary seeks actively to incorporate them," he states. He attributes this development to former party leader Jiang Zemin, who "opened the doors for capitalists to join the party."

While everyone seems to have an opinion about China, these arguments seem to be supported by recent events. As China's manufacturing sector has witnessed a significant drop in foreign demand, its earnings, as well as the money that in turn pours into government coffers, have dropped substantially. As a direct result of this, the growth of China's domestic economy has plummeted."
Oil and China: Where is the Middle Class?
www.thedailybanter.com...

It's an open question if China can change it's economic model:
I am just not sure that China can change its model. This is the same reason why I am not sure that what economists often look at as great fundamentals necessarily translate into sustainable economic growth.
Latin America's per capita income in the 50’s was 25% of the US. Asia’s was 10%. It was thought that the mineral wealth, sophisticated society, education, and people would allow Latin America to catch up in 30 years. Today Asia’s per capita income is 25% of the US, while Latin America is 20%.
Africa has enormous potential and had had since I was born almost 60 years ago. It has never lived up to it.
Economists are just beginning to understand something that I think is crucial. The rules. (see Good Capitalism, Bad Capitalism, Power and Prosperity. Good government is the magic ingredient that helps all of the other assets actually produces wealth. It’s like two business firms. One succeeds. The other doesn’t. Good management is the difference.
Still however good a manager is, it is rare that they are always right all of the time. The average age of a Dow company is only 40 years. The average tenure of a CEO is 10 years. Half that for a Fortune 100 company.
The question is whether China can change with the same set of leaders. I am not sure if it can. When leaders everywhere get into power they compensate the people who keep them there at the expense of the economy as a whole. As time goes on the situation becomes worse.
To change China will have to change its model or the W will turn into an L."--william Gamble

May 30 08:08 PM

[conceptwizard:]

The conditions that supported the explosive growth of the last decade no longer exist. The credit markets are in a shambles, the banking system is hanging by a thread, and the consumer is out of gas. Traders are clinging to the slim hope that the worst is over, but they could be mistaken. There's probably another leg down and it will be more vicious than the last.

May 30 08:17 PM

[Fat Squirrel:]

How interesting: The URL provided by "Thaine" ( is.gd/HGYt ) leads you right to Cetin Hakimoglu's blog site! The "is.gd" domain is a URL shortener / obfuscator based in Grenada.

Apparently C(r)etin is now posting this URL using phony SA user names to drive traffic to his sorry excuse for a blog. Sigh.

May 30 08:50 PM

[Dave Wrixon:]

Pump some cash at a few mindless wonders and it is surprising what they can achieve!


On May 30 05:10 PM map wrote:

> To me, it sounds like your original logic was more sound and people
> are "buying for the sake of buying." Long-term fundamentals probably
> put the S&P at 700 to 800, and then you can subtract some more
> from those numbers for the bad economy if you feel you need to be
> extra conservative. Real estate and stocks are still in a bubble
> if looking at the long-term trend. The immediate future of the developed
> world seems to be paying back a massive debt hangover, which will
> probably all but kill growth in these countries for quite a while
> as everyone decides to keep their belts tight.

May 30 09:55 PM

[Dean M:]

Up until now everyone was incredulous about the market going up. Now that we're all starting to slowly get pulled onto the bandwagon is the time we need to be extra careful.

May 30 11:21 PM

[Moon Kil Woong:]

The reason is simple, Treasury bond investors are rushing into any asset class they can to pay for their massive losses. Is this bullish? Short term yes, but long term it can only end badly.

May 30 11:51 PM

[Fighting Yoda:]

This rally is simply a hatchet job of Goebbellian magnitude. The cronies (TARP banks etc) are trying to sell the “confidence” after the stress-free stress test. They had to sell stock and they did - it high prices. And to some extent tape painting, and then there is always the fear in fund managers of 'missing the rally'. The more they think they have missed the more they rush in.

Fundamentals are poor both of the economy and the market. The rally is unjustified, should fail anytime. But it keeps on going- almost like the energizer bunny.

May 31 12:30 AM

[InvestBaboo:]

Jesus! Isn't the answer as simple as a market finding its correct level because it OVERCORRECTED in March due to unjust fears of total and complete financial meltdown and the incredible mayhem caused by the attack of the shorts on the banking industry? How can you call this rally unjustified when we are still not close to the point where we fell off the cliff? I suggest you look at the market from the perspective of WHERE IT WAS before it fell off the cliff and not measure it by the rapid climb it is doing to get back on the cliff! And then everything will seem pretty rational and the rally numbers are not far fetched or unjustified by any means!

May 31 02:51 AM

[Burticus:]

The spike in stocks in the last hour of the month is an obvious tape-painting exercise by the FedGov plunge protection team and their bankster cartel masters. Gubmint intervention and manipulation in FOREX, commodity, bond and stock markets has now become routing. Nobody and nothing paper/electronic can be trusted any more and no technical or fundamental analysis can be relied upon without considering the missing PPT internention piece of the puzzle.

Following the massive decline in stocks through November and again in March, a "dead cat bounce" or bear rally is no surprise. They happened repeatedly in the first depression. Clearly, the current rally in stocks is not supported by any fundamentals, since the only good news these days is less-horrible news. There is not one positive fundamental economic or financial trend, except that the Asians may finally accept and take their dollar-paper lickin' and throw the western millstone off their necks.

The missing piece of the bear/suckers' rally puzzle is the Illuminist plan for Big Sting II - completing the destruction and looting of Amerika and crushing its middle class in preparation for global political, social and economic control. Use the media propaganda machine, gubmint manipulation and Goldman/JP Morgan gangsters to pump up the Dow to 10,000. Lure the unwitting sucker-dupe sheeple (who actually work for their money and try save it by investing) into the market, allowing the insiders dump their paper in opaque OTC markets. Accelerate out-of-control gubmint spending and central bankster money-printing to doom the dollar, Treasuries and the broader bond market, closing off the sheeples' usual escape route. When the stock market is high enough, the bankster cartel will give the nod to their puppets in the Fed, gubmint and media, short everything, and send the stock market to new lows, plucking the chickens again on the way down. When there is widespread capitulation and blood in the streets, the insiders will buy up everything real, especially gold and silver (which will go on a moon-shot), companies at pennies on the dollar and farmland.

Welcome to a fascist/socialist/comm... economic system under an political oligarchy by the elephant/jackass party! Sure, traders with good information and quick reflexes can profit in this type of market, but for your average working stiff, the only no-brainer safe investment will be physical gold and silver.

Disclosure: Long physical silver & gold, CEF, steel & lead, non-perishable food and hangin' rope

May 31 11:02 AM

[fortypercent:]

markets have changed and moved on. old types of characterization no longer apply like they used to. older forms of characterization are simply not useful. things are different because of globalization of capital. things are different because the guilt of trading has finally been shrugged off. buy and hold? wall street? yeah right. see the short-term trend for whatever the whole world has made of it, then go with the trend. for what ever reason, we have a bull on our hands.
if you disagree, take a pill and get over it or lose money.

May 31 11:32 AM

[fortypercent:]

i work like a dog on my job.
and some days i quick steal a minute here and there to trade. i have done well with the strong market trend that started in 03/09. i have made money.
no government anything.
i can say one thing with absolute certainty, my money( read profits) is real.


On May 31 11:02 AM Burticus wrote:

> The spike in stocks in the last hour of the month is an obvious tape-painting
> exercise by the FedGov plunge protection team and their bankster
> cartel masters. Gubmint intervention and manipulation in FOREX,
> commodity, bond and stock markets has now become routing. Nobody
> and nothing paper/electronic can be trusted any more and no technical
> or fundamental analysis can be relied upon without considering the
> missing PPT internention piece of the puzzle.
>
> Following the massive decline in stocks through November and again
> in March, a "dead cat bounce" or bear rally is no surprise. They
> happened repeatedly in the first depression. Clearly, the current
> rally in stocks is not supported by any fundamentals, since the only
> good news these days is less-horrible news. There is not one positive
> fundamental economic or financial trend, except that the Asians may
> finally accept and take their dollar-paper lickin' and throw the
> western millstone off their necks.
>
> The missing piece of the bear/suckers' rally puzzle is the Illuminist
> plan for Big Sting II - completing the destruction and looting of
> Amerika and crushing its middle class in preparation for global political,
> social and economic control. Use the media propaganda machine, gubmint
> manipulation and Goldman/JP Morgan gangsters to pump up the Dow to
> 10,000. Lure the unwitting sucker-dupe sheeple (who actually work
> for their money and try save it by investing) into the market, allowing
> the insiders dump their paper in opaque OTC markets. Accelerate
> out-of-control gubmint spending and central bankster money-printing
> to doom the dollar, Treasuries and the broader bond market, closing
> off the sheeples' usual escape route. When the stock market is high
> enough, the bankster cartel will give the nod to their puppets in
> the Fed, gubmint and media, short everything, and send the stock
> market to new lows, plucking the chickens again on the way down.
> When there is widespread capitulation and blood in the streets, the
> insiders will buy up everything real, especially gold and silver
> (which will go on a moon-shot), companies at pennies on the dollar
> and farmland.
>
> Welcome to a fascist/socialist/comm... economic system under an political
> oligarchy by the elephant/jackass party! Sure, traders with good
> information and quick reflexes can profit in this type of market,
> but for your average working stiff, the only no-brainer safe investment
> will be physical gold and silver.
>
> Disclosure: Long physical silver & gold, CEF, steel & lead,
> non-perishable food and hangin' rope

May 31 11:36 AM

[OldNavySailor:]

You write like Bob Chapman, a great friend of free market capitalism!


On May 31 11:02 AM Burticus wrote:

> The spike in stocks in the last hour of the month is an obvious tape-painting
> exercise by the FedGov plunge protection team and their bankster
> cartel masters. Gubmint intervention and manipulation in FOREX,
> commodity, bond and stock markets has now become routing. Nobody
> and nothing paper/electronic can be trusted any more and no technical
> or fundamental analysis can be relied upon without considering the
> missing PPT internention piece of the puzzle.
>
> Following the massive decline in stocks through November and again
> in March, a "dead cat bounce" or bear rally is no surprise. They
> happened repeatedly in the first depression. Clearly, the current
> rally in stocks is not supported by any fundamentals, since the only
> good news these days is less-horrible news. There is not one positive
> fundamental economic or financial trend, except that the Asians may
> finally accept and take their dollar-paper lickin' and throw the
> western millstone off their necks.
>
> The missing piece of the bear/suckers' rally puzzle is the Illuminist
> plan for Big Sting II - completing the destruction and looting of
> Amerika and crushing its middle class in preparation for global political,
> social and economic control. Use the media propaganda machine, gubmint
> manipulation and Goldman/JP Morgan gangsters to pump up the Dow to
> 10,000. Lure the unwitting sucker-dupe sheeple (who actually work
> for their money and try save it by investing) into the market, allowing
> the insiders dump their paper in opaque OTC markets. Accelerate
> out-of-control gubmint spending and central bankster money-printing
> to doom the dollar, Treasuries and the broader bond market, closing
> off the sheeples' usual escape route. When the stock market is high
> enough, the bankster cartel will give the nod to their puppets in
> the Fed, gubmint and media, short everything, and send the stock
> market to new lows, plucking the chickens again on the way down.
> When there is widespread capitulation and blood in the streets, the
> insiders will buy up everything real, especially gold and silver
> (which will go on a moon-shot), companies at pennies on the dollar
> and farmland.
>
> Welcome to a fascist/socialist/comm... economic system under an political
> oligarchy by the elephant/jackass party! Sure, traders with good
> information and quick reflexes can profit in this type of market,
> but for your average working stiff, the only no-brainer safe investment
> will be physical gold and silver.
>
> Disclosure: Long physical silver & gold, CEF, steel & lead,
> non-perishable food and hangin' rope

May 31 12:00 PM

[Economic Di...:]

Thanks so much for all of the debate on this article. There is plenty to read over from all of the great comments. I think the point that really needs to be figured out is if the lows set a while back were really too pessimistic or not. If they were, then the sharp snap rally corrects that, if not then the markets are adrift right now. Only time will tell. My 2 cents is that stocks right now are pricey, as much of the current rally has bennin some of the worst stocks! Earnings expectations are a bit on the high side as well.
Thanks again for all the opinions.

May 31 12:50 PM

[veryold:]

How about the order, "execute on closing?"

May 31 03:53 PM

[YoYoMama:]

Did our favorite perma-bull get kicked off the board?


On May 30 05:15 PM The Geoffster wrote:

> Cetin, I know it's you!

May 31 05:26 PM

[Steven Vincent:]

This nascent bull market is easily definable: it's the inflation/reflation bubble trade resulting from unprecedented monetary and fiscal stimulus worldwide.

Jesse Livermore said (paraphrasing): Don't look for the reason a move is happening, just follow the trend...the reason will present itself in due time.

Friday's move happened because bears who tried to short the May top have seen support hold as bull buy any dip that presents itself. On Friday the May consolidation triangle broke to the upside, leading to a short covering rally by nervous, frustrated bears. It's as simple as that. And the bears will get squeezed well this week up to about SPX 950 where there is significant techincal resistance.

For some in depth analysis, please read: seekingalpha.com/artic...

May 31 10:35 PM

[fortypercent:]

as i look over the charts of market indices it looks like a bull to me. the trend lines all are up. just a few days ago they were headed lower. a few more closes above the trend will be bull confirmation

Jun 02 06:05 PM