Monday, June 29, 2009

The disconnect between the market rally and the jobless economy

I've always posited this recent strong rally, while good for account values, was a bear market rally--a sucker's rally, if you will. While a 40% rally is legitimate by any measure, it's within a secular bear market. Why? Any recovery will be tepid, as industrial output is plummeting, cash- and credit-strapped consumers aren't spending, banks aren't lending, and the private sector isn't hiring. Barron's has a good article on the true measure of the state of the economy, tax revenue:

I don't know when the market will wake up and realize how dire the prospects for worldwide economic growth are. But as long as central banks continue to print currency in an attempt to stimulate their respective economies, I suppose asset values can continue to rise. Aside from pivotal event-driven biotech stocks, and a few precious metal plays, I am on the sidelines, even if it means I miss the next 10 or 20%. It's never wrong to take profits.

It's been a good ride, but I am not going to fall in love with this market. I don't want my heart to be broken.

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