Suckers Rally or Not?

Wading in on the debate of whether this is a bear market rally or not one has to start differentiating among groups that have long term secular fundamental headwinds and those that have long term secular tailwinds. Consumer deleveraging and the shrinking of bank balance sheets will be a multi year process that will keep a lid on any type of economic recovery and the earnings power of those co’s affected. Globalization and the development of the middle class in emerging markets is a long term secular trend as the developing world has 86% of the worlds population, thus the demand for raw materials will be a multi decade process, notwithstanding the cyclical correction seen over the past year. Helping the commodity story in the short term is of course the policies of the Fed and other central banks. Thus, the question of whether the MARKET is going up or down from here can be misleading in gauging the underlying trends.
 
The reequitization of well known highly leveraged companies continues as Ford and BK announced secondaries. Ford’s proceeds will go to the health care trust of the union. The US Govt is of course the only entity that doesn’t know deleveraging and its party time still with their balance sheet. The April Nat’l Federation of Independent Business small business optimism index rose almost 6 pts to the highest since Nov after the 2nd lowest reading ever in March. Fixed Asset Investment for April in China rose a touch higher than expected but it’s the biggest % gain since July ’06. Chinese exports though in April fell a greater than expected 22.6% vs a forecasted drop of 15.3%. The Pound is at the highest level vs the $ since mid Dec after March IP fell smaller than expected and a home price index was not as bad as feared. Commodities are bouncing again with oil rising to the highest level since late Nov.

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