A Bear Market Rally

My reading tells me that the recent optimism in the economy is wishful thinking. The technical indicators- based on trends – say “buy” but the business fundamentals do not back it up. Most traders pay more attention to trends than fundamentals, because it is easier. The current ralley is an artificial run up being headed by traders who are watching for the trend to peak before getting out. Or, they think that the market has bottomed and that it is safe to "get back in". In either case, I do not believe that the market fundamentals support a meaningful recovery based on the fundamentals, at least not yet.

Usually the private sector leads the public sector out of a recession as the increase in tax revenues lags behind growth by a year or more. This time it may be different as the fed floods the public sector with money to stimulate private growth. I don’t see much happening now except for bargain hunting. The stimulus package doesn’t seem to be hitting very hard so far, and municipal tax revenues are definitely not up enough to support municipal spending. I hope I am wrong but at this point I am not going to gamble on it.

I do think that the cities stand a good chance of getting substantial infrastructure and transportation money from the stimulus package, but even on a fast track, we are a year away from seeing real movement, or even the initial design work for new projects.

Another real danger lies down the road in the form of inflation. That is what happened in the late 70’s. There is no better way to pay for a lost war than to make your currency less valuable, assuming that the debt is payable in that currency.