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Thoughts on the Recent Rally

is this rally sustainable? The market is too high, by our lights. Yet it could continue for some time, because there is cash on the sidelines, and people are more afraid of "dead money" than of losing money.

Eanirngs are bad, by any objective measure. But they are (mostly) beating scaled down expectations. So the economy feels "warm," even though it isn't. If you put your hands in cold and hot water, and then both in lukewarm water, the hot water hand feels cold, and the cold water hand feels warm. That's because of the way the "heat" is flowing.

The problem with earnings is that they will eventually disappoint. That is, investors will realize that P/E ratios are very high, and not coming down quickly. They will then realize that earnings "grew" off a low base, and are not really growing.

And look at what companies have to do to boost earnings. One is to lay off workers. The other is to buy back stock, leveraging up. Neither of which is good for the economy, and ultimately, not for stocks.