Dow 8500? I just don't see it.

May 20 -- So the FED agrees with me. Sure they continued to use positive and optimistic phrases like "the banking system is healing" and "green shoots" and things are "turning around." And most all of those are at least somewhat true. And even necessary perhaps given the delicate psyche of people in current times. However, what else did they say? How did they agree with me?

They revised their economic projects for 2009 DOWN. Instead of the near flat GDP growth for 2009 that bulls are predicting and the -0.5% to -1.3% GDP contraction that the FED has previously predicted...it revised its estimates for GDP contraction to -1.3% to -2% now. Moreover, the FED believes that unemployment will hit 10% by year end. Remember that the bank stress tests assumed only a 10.3% unemployment level at the END OF 2010 and that was only in the MOST ADVERSE assumptions test. Sounds a little less credible now. Certainly things are at least declining at a less severe rate, but declines are still declines. What if initial unemployment claims is only 350,000 instead of the forecasted 645,000 tomorrow morning? Well that 350,000 number is at and above the last recession level. So improvement = only a normal recession? (Besides, initial unemployment claims WONT be only 350,000 tomorrow. GM and Chrysler are expected to keep those numbers in the 500s, 600s, or even 700s.

And how did the market react to this dose of reality? Relatively flatly. Interesting? unbelievably? short-term and who cares? I don't know short term trades and cyclical events (yet at least), but I do think that macro-economic data ultimately directs the market. And currently the market is living on optimism and expected GDP flatness in 2nd half of 2009. Who knows, maybe the Obama stimulus (which really kicks in in 2010...but why did we have to wait for it to start in the second half of 2009 at all?) will provide some growth. It should, even if inflationary in the long run. But still the underlying fundamentals are what I read and run with, and to me - AND NOW TO THE FED AS WELL - it appears that even if things are stabilizing, actual growth at any serious speed is a long way aways, as in early 2011 likely.

May 19 -- It appears that the S&P500 has made its run at trying to escape the 875-900 range with a huge day yesterday and what appears to be poised for another big day today. The news propelling these moves: (i) the fact that Bulls continue to rage on and aren't being wavered by logic or negative news very much; (ii) a news vacuum and the absence of meaningful economic reports translates into situations where 'optimistic' and 'hopeful' news about banks repaying TARP to get loose of the government and Indian elections and economic reform = huge gains; (iii) the assumption that the 2nd half of 2009 will be positive GDP growth; (iv) belief that the housing market has bottomed or is bottoming as a result of "good" earnings by Lowes and Home Depot and an increase in pending sales (not actual sales so much mind you); and (v) the general belief in the supremacy of American business and enterprise.

Again, while still skeptical, it appears that Bulls may not be denied. Interesting to note though -- is it possible that what we are currently seeing as progress and 'growth' is really just stabilization? A growing Bull market requires active and serious economic growth and sales and production, etc. We're not seeing that. We're seeing positive earnings from cut costs. We're seeing stabilization in various sectors due to government monetary backstopping. We're seeing unemployment start to flatten although continue to get worse. So while things do appear better...and MAYBE even to have bottomed... how will the market react when the expectations of ACTUAL growth don't start appearing in the next 6 months or even year or two?

May 15 -- Well I don't think that this past week (dropping approx 4%) necessarily marks the end of a run above 8500 but it does start conversations of doubt and uncertainty, and makes people address the underlying questions and problems that I think should be keeping this market from going up up and away. I think next week is key in the market popping one way or another. The S&P trading range is 875 - 900. First move outside that range wins I believe.

May 13 -- Also consider the ongoing impact of the Chrysler and GM bankruptcies. I guess the GM reference is a little premature but probably not really, right?

It was reported today that GM plans to cut 42% of its dealerships. Chrysler plans to cut 27%. Now that doesn't automatically = bankruptcy for these dealerships but for the over-leveraged ones... probably. And let's be honest, over-leveraging by people in those days wasn't exactly uncommon...

May 4 -- For a number of sessions now stocks have started to sell into rallies. Think about it, a month ago, stocks were rallying on "less than bad" news. Now they're having trouble rallying on "good" news, such as the April unemployment number of 539,000 which dramatically beat out the concensus of 610,000. Granted, a large chunk of unemployment in April was offset by government hiring short-term employees to conduct the 2010 census, but still.

There has been no real consolidation moments in this rally. Its been straight up. That's not good support for when things go bad. Can you image if treasury auctions or unemployment or credit losses started reporting worse again.

The stock market rally has been based upon the assumption that GDP will turn positive in the 2nd half of '09. A recent survery of CEO revealed expectations of 3Q growth of 0.5% and 4Q growth of 1.8% for 2009. I believe GDP will remain negative through 2009 and then be slightly positive (1% or less) in 2010.

Keep in mind that the Chrysler bankruptcy is still ongoing and that GM will probably be joining that bandwagon in 3 weeks (June 1). That could eventually lead to more unemployment concerns and money/etc being sucked out of the already deteriorating economy. Remember that we're not just talking Chrysler and GM employees, but also suppliers and dealers. It's a significant ripple effect.