Strange thing, this market rally, and I keep wondering just where we are headed?  We’ve had the odd bit of good news here and there, but the general economy isn’t performing very well.  We’ve lost 6.7 million jobs since the official onset of this recession, and the economy is continuing to shed jobs at an alarming rate.  Profits for blue chips have been anemic as are the mids and small-cap stocks. No, the economy and corporate profits aren’t driving this rally.  What IS powering this rally is speculation, though.

The initial phase of most bull markets is usually based in speculation, though.  So you might argue that we are entering a new bull market, except this run up is actually quite extraordinary when compared with initial phases of past bull markets.  To be sure, we are nearly twice as high, in percentage, as any other initial bull market phase.

And then there is the extraordinarily low volume.  Have you noticed that a good deal of the trading, nearly half, has been concentrated in the financial stocks?  Yep, the very nebulous of the onset of the recession is now the focal point for high stakes speculation.  And why not?  If the government is committed to these five or six banks to the point that they are “too big to fail” how could buying and selling them be a losing proposition?   It hasn’t, either.  Most of the ultra large banking stocks have posted some decent profit numbers.  Then again, if you give me 80 billion dollars I would like to think I could make a decent profit.  It always brings to mind something my father, who was not prone to besmirch anyone, once told me, “your banker is not your friend.”   Smart guy, pops.

The conspiracy theorists are having a field day with this rally, as they are utterly, without a doubt, convinced the government is heavily involved in propping the market up to restore public confidence.  Sure would take a lot of money, though, to prop up all the exchanges simultaneously.   I have my doubts about the conspiracy theorists, though, because excessive speculation is also a trademark for a bear market rally.

A bear market rally?  I don’t see how this market can continue to rise on the sketchy tidbits of good news and the massive amounts of bad news being released of late.  Oddly enough, the blue chips are performing at about half the rate of return as the small caps,, and that disparity in stock appreciation is a real concern for this trader.  Unless we see some radical turn in employment and corporate earnings, along with some real volume from investors and not speculators, I suspect this rally is unsustainable.  Then again, the stock price is the “decider” (to coin a phrase from our last president) and the stock prices have had a great run.   Picking market tops and troughs is among the most unscientific and least understood aspects of investing.

But it does appear we have gotten ahead of ourselves in this rally whether it is a bull market or bear market rally.  AIG, Fannie and Freddie have all tripled their value in this current month, and none of the three is in anywhere near financially sound.  Then again, there is the notion they are “too big to let fall”…oh yea, I already mentioned that, didn’t I?

So this market worries me some, and makes me feel like the ground beneath my feet is very slippery.  Then again, not everyone falls down on slippery ground, but some do fall, and this rally has defied gravity so far.   Gravity is a finite variable, and not good to play around with, if you know what I mean.