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Return of the Bear?

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The sell off in stocks ($SPY, $ES_F, $QQQ) yesterday has jaws flapping. I don’t know why. We had a really big comeback from the depths in November. Many people look at the market in terms of benchmarks like the changing of the year. As if the market cares what day it is.

We have come a long way and while there are some good things happening, there are some really ugly things in the pot as well. Even though the EU seems to have put a tourniquet on the Greek problem, my gut feels unsettled about it.

Bulls continue to point to all the cash on the sideline, but I have been hearing about cash on the sideline for years now. It’s not going anywhere. There is still too much uncertainty.

Bulls also point to it being a presidential year. Markets generally don’t do badly in election years, but they don’t go in a straight line up. They tend to be pretty volatile with a swoon in midyear. Why is this market going to be any different?

Bears are touting the decline in the delivery of gasoline. It has fallen off a cliff. That generally predicts recessions. I am empathetic toward their view. Why?

In the 1930's, Roosevelt engaged in a lot of government spending to stimulate the economy. It did. Then it didn’t. In 1937, five years after the big stimulus his Treasury secretary Henry Morgenthau said, “”We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot.”

It’s not any different this time.

Our jobless numbers are pitiful. What’s really scary is the labor participation rate. No one is looking for work because they have lost hope. Instead of Hoovervilles, we have Obamavilles that you don’t see. People living in houses on government support, not paying mortgages to banks, and laws in place so banks can’t toss them out.

Was the rally from November a new bull market? Or just a secular bull inside a bigger bear?

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