A couple of points here. First, subprime is near or at a bottom. That is the good news. The bad news is that the dollars loaned in prime and Alt-A far exceed subprime and the dollars in delinquency on these loans now outstrip the dollars on defaulting subprime - go figure. Second, just when you think the worst might be past, mortgage defaults are setting new records in California.
As I noted yesterday, big bank profits seem to be driven by some short term boosts and machinations. As the linked article notes, loan losses continue, as are CRE and credit card and other loan losses. Loan defaults are at record levels in California (the link has an awesome chart). As I said yesterday, banks are in the eye of the storm. I continue to have that opinion.
From Calculated Risk I am simply going to link their report on the IMF showing a world wide economic slump like nothing since the Great Depression.
I admit that the government largess might lead to a short to medium term rebound even beyond what has already happened. To me the healthier market reaction is reaching the true bottom and growing from there. But that is in part on the government letting businesses and consumers reach their true bottom, which the government seems hell bent on not allowing. Unfortunately, there are true prospects of us building a new bubble. I do not think it has the legs to match the last one and I pray American consumers are wise enough not to bite, but there may be enough stimulus there to get us to a small to medium bubble, which could lead to a mid-term market recovery. I think this is the wrong route, but no one listens to me, so get used to it.
On the other hand, people might wake up to reality and the market could correct again. We could do what the economy needs to do and flush out all the toxic crap. Never mind, we have no patience for that. We are in for years of false recoveries and a gradual return to reality. This truly creates a difficult enviroment in which to invest. Last year was easy if you understood what was happening; just bet on things going down. This year is harder - at least for me because I do not believe any rally is sustainable.