What Now?

If the chatter is correct, and the big money behind the recent rally was mostly composed of short covers, then we're in for a pullback. Day traders got confused by the rally and ran up the prices on financials and oil. Both are under-valued, but both are suspect for quality. I still believe that oil prices will skyrocket again in the future, but the short run prospects are hard to gauge. I think I would get excited if a barrel of crude came back down to about $45.

Financials, though. Why not go to Vegas? Well, there's a reason financials are better than gambling: the gov't is backing them. Part of me thinks that a basket of about 19 financials corresponding to the big TARP institutions would stand to grow about 500% over the next fifteen years. But that's a big risk. No one knows what will become of the industry -- will consolidation wash out the weaker players? Will regulation kill the risk, and therefore the profit potential? I, for one, wouldn't touch the financials unless I had money to burn.

I still stand my statement that the market bottomed in March. The economy, meanwhile, is still losing. My intuitive take is that we will not see a full recovery for about a decade. Interestingly, this corresponds with the (now former) head economist of Merrill Lynch's analysis. Rosenberg thinks we're at the halfway point of an 18 year bull market. Good times all around.