So banks are doing well? Then why are Wells Fargo (WFC), Bank of America (BAC), Morgan Stanley (MS), and Citi (C) raising more cash by issuing equity (and adding billions to a preferred/common equity conversion plan in Citi's case). This is after BAC and Citi said they have no plans to raise more capital. I have been repeatedly stating that I expect insolvent financials to be issuing massive equity into this rally, and that is exactly what is happening.
Simon Property Group (SPG) diluted shareholders for the second time this year, which combined with Goldman's SPG short squeeze last month has left the public bagholding worthless equity.
The ECB cut rates to a record-low 1%, a clear indication the ECB is playing catch-up and will be resorting to quantitative easing soon enough, as I have been expecting. Berlin has been slow, if not deaf, to react to the Eastern European crisis and the Euro is going to face massive devaluation in coming months, especially considering the weak bond auctions lately in Germany.
The FDIC's credit line has been extended to $500B by Congress in the first wave of FDIC bailouts, like I've been mentioning. As more banks fail and more money is pledged to the presently-insolvent FDIC, watch gold rise sharply.
General Motors (GM) issued 60 BILLION new shares to dilute shareholders ahead of its June 1 bankruptcy (deadline). Yet it still trades at $1.60? Clearly sustainable, you can thank the green shoots for that.
The chairman of Hong Kong Exchanges LLC is saying stocks are at "their most expensive valuations since January" and is refusing to buy stocks at these levels. I'd have to agree, as market-neutral strategies are getting whipsawed hard and distribution volume continues to outpace accumulative volume.
With rates rising again in the short-term, expect a lot of more QE in coming FOMC meetings, until the Treasury bubble is sufficiently inflated, which equals the subsidization of enough losses for the contentment of the Federal Reserve. Once the QE is finished and rates start rising naturally, inflation will bleed into the economy (and equities), and gold will skyrocket. The nominal bottom in stocks will be seen in 2009, it's just a matter of time until we know whether the bottom was March 2009 or late summer 2009.
With so much equity being issued into this rally, insider selling at October 2007 levels, liquidity providers being forced to deleverage, and volume nowhere to be found, the sustainability of this rally is clearly suspect and whenever it does reverse, it will be hard and into an illiquid market. I have been getting wrecked as I try shorting this tough market, and recently a beautiful falling wedge in ultrashort ETFs was BROKEN DOWN on heavy volume. This corresponded with a rising wedge BREAKOUT in market indices. This equals parabolic. The reversal is inching closer and closer. If anything, this rally has taught me to rely more on technicals for entry/exit points, as the "unnatural" manipulative forces at work driving this rally are NOT to be underestimated. The sustainability of this rally is not to be bought into, however. This is a "broken" market with zero liquidity left and the impending reversal will uncover the true nature of this bear bounce, a market illquidity event. With a market with such low liquidity, Dow 9000/200DMA is possible, though improbable. I still expect my ultrashort ETF positions to yield massive gains when everything is said and done, but unfortunately the entry points weren't ideal.
Watch US and Euro nation sovereign CDSs to explode soon and the massive short squeeze in credit markets to be met with a dramatic reversal. For all of you bulls out there, if the Treasury's and Fed's capital injections have truly forced a bottom in equities, why is gold stagnant? Without government backstops, these banks are all insolvent, so why hasn't inflation crept back into the picture? If economic second derivatives are driving equities higher, surely inflationary risk should be driving gold much higher? The Dow/gold ratio needs to hit 1 before we bottom in real terms. Simple as that.
I leave you with the words of terrific market prognisticator David Rosenberg:
Of all the market forecasters, Mr. Bond gets it right most often.With 30yTs tanking and T-bills showing massive demand, clearly Mr. Bond is bearish.
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