MARKET PERFECTION

the bulls have been talking about it for months now, and as sure as winter will turn to spring in just a few days, the market will rally when the bombs drop, so why not get a jump on it? thats what seems to have happened yesterday with the markets having their best day of the year (maybe three years). even as the economic data showed continued weakness, the anticipation of war was enough to scare the bears and the battered bulls into equities in the most frenentic activity of the year, and again possibly in three years. if we could only predict the weather so well? market perfection is here again. or is it?

what exactly was the catalyst for such an exciting move in the market? was it the 7 years lows for all the european borses? was it the 20 years lows for the japanese indexes? was it the terrible rift going on in the UN? could it have been the all-time highs for gasoline? or the 40 year lows on treasuries? was it the mass demonstrations and denunciations of america all around the world? was it the looming prospect of a multi-year occupation of the middle east to spread democracy? maybe it was the hope that all these things are about as bad as they can get and they are sure to get better soon? i guess the last one is it, as none of the 'real' things that are ongoing would justify a rally of yesterdays proportion.

but after such a long and pronounced downturn, investors will take it and hope that theres more to come. as a voice of sensability, i will point out that every rally that has occured over the last 3 years, no matter the strength or size of it, has FAILED. and failed miserably causing further destruction of capital. therefore, before we get too happy about what happened and may continue to happen, heed this warning, until the economic and geo-political problems are resolved, each rally in the market is a selling opportunity and a chance to liquidate holdings at better prices.

the bulls are very quick to jump all over the rally and proclaim victory over the bearish story about double-dip recessions and war/terror fears. long waiting optimists are also jumping up and down saying that they knew that the war was the problem and now, even before the war situation is clarified, the economy will begin to improve. just like that, easy as pie, back to bullish forecasts and optimistic outlooks. not so fast.

first of all, the war thing isnt resolved just yet. secondly, the economy isnt better today then it was last week, last month, or last year. thirdly, there are still a miriad of risks and uncertainties looming out there that havent been addressed or resolved to any degree. so to think that things are turning is just plain speculation. there is no fact or reality in the thesis that once the war with iraq is resolved, either with or without force, our economy or geo-political situation will improve. in fact, theres much more evidence to the contrary. i dont want to throw cold water on all the good feelings created by yesterdays rally (well, maybe i do) but to treat it as anything more than a short covering panic and buying surge of one day would be foolish and dangerous.

the bulls and the market have alot to prove before the bear market will be pronounced dead. maybe yesterday is the beginning of that and maybe its not. for the time being, caution and skepticism would be the better part of valour. and as the song by the who goes, "we wont be fooled again!"

have a grateful day!

larry