Co-written by Qasim Khan & Tyler DeBoer
Since March lows, the S&P 500 is up over 51%, while myriad media outlets have propagated the idea of the return of economic growth to the United States and the end of its recession. Political figures and pundits offering observations of "green shoots" and sentiments of optimism and recovery are intertwined in this new bull market hysteria sweeping the financial world. Meanwhile, troubled banks and insurers who just months ago were saved from complete implosion by the taxpayer have been reporting record earnings and record compensation to go with them.
Yet the optimism reflected by equity markets and the rose-colored perspective almost pervasively offered by economic analysts and commentators is rooted in fallacious logic and Panglossian interpretation of economic conditions. The reality is, the economy is worsening, deleveraging and writedowns are far from reaching finality, earnings are misrepresenting truth, and the market has staged a bubbly technical-driven and bank/government collusion-financed bear market rally.
The rally is premised on unsustainable earnings and weakening economic fundamentals, driven by liquidity monopolization catalyzed by bank/government collusion, and is a success to those involved inasmuch that record levels of equity and debt have been sold into the rally (as well as record levels of insider sales relative to purchases), leaving the taxpayer to be the bagholder. We remain in the heart of a secular, credit-driven recession and the stock market is set for a massive correction.
There are four main aspects to the new bull market thesis and its refutation:
Bank and corporate earnings
Economic indicators
Market technicals, internals, and participants
Government involvement
Bank and corporate earnings
The market initially began its rally back in March based off of earnings pronouncements from Citigroup (C), JP Morgan Chase (JPM), Bank of America (BAC), and General Electric (GE), forecasting
