I keep hearing people confusing yesterday's stock market rally with an "all clear" signal for this financial crisis. While I do think the free market forces combined with this trillion dollar bail out for Wall Street have put us on a path for strong growth during the 2nd and 3rd quarter of this year, I'm far from thinking we're through with the ramifications of the real estate bubble popping. Hell, maybe all of Wall Street's still a bubble...those brokerage and bank stocks are still up a bunch from a few years ago and Goldman's earnings have gone from $6 to $25 a share since 2002. That's gotta be bubblicious if not out right bubbled.
Anyway, the way I see the set up here right now is this:
1. Very near term, I'd be neutral. I was pounding the table here on these pages on Monday and Tuesday that you had to be long and strong into the Fed meeting. That trade's over, and always remember that a trade is a trade is a trade. Take the trade and move on.
2. Short-term, say, the next few weeks will get everybody panicked as earnings in light and warnings come in heavy. See Sony Ericsson's warning for example today. Let that panic settle back in again and then start scaling into the long side again.
3. Intermediate term you gotta be bullish for the next few months, especially since everybody explains to you that you should be bearish for the next few months since earnings will supposedly be bad...that's most likely a headfake, as everybody will be looking backwards at the last quarter's reports, which will indeed be bad. Recall that back late last year, when stocks were 20-50% higher, that EVERYBODY promised those same earnings reports would be great. They were looking backwards back then too. Looking forward rather than backward, we see a tsunami of stimulus and asset inflators hitting in the next few weeks and months. They won't change the long term, but they'll inflate things for a while.
4 . For the long term, we've still got binary outcome possibilities. With all the bubble inflating and deflating going on in this country for the last couple decades, we're most likely headed into yet more bubble territory for the next few years (see my repeated predictions for an Echo Techo Bubble in 2008 and beyond) or we're headed for the depression that the politicians and all their meddling cause even as they and most of the mainstream media continually try to explain that all this meddling prevents such depressions.
Government policies cause depressions and bubbles. Natural market forces allow for steady growth in nuanced boom and bust cycles.