Bullishness Continues

The market continues to rise as the Dow was up ¾ of 1%, the S&P 500 up 1.5%, and the NASDAQ up over 2% this past week. However, the latest Investors Intelligence poll has the bulls at 48.9%, while the ranks of the bears have slipped further to 18.9%. Bullish sentiment is now up in 7 of the past 8 weeks and bearish sentiment is down for the fourth week in a row. Al of this occurring as the major market indices have traded higher eight of the last nine weeks. We are approaching extreme levels.

Tax Day is Thursday, a dreaded deadline for millions of Americans. However, for nearly half of U.S. households it's simply somebody else's problem. About 47 percent of Americans will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions, and exemptions, to eliminate their liability.

The result is a system that allows almost half the country to not have to pay for programs that benefit everyone, including national defense, public safety, infrastructure and education. Conversely, the top 10 percent of earners pay about 73 percent of the total income taxes collected by the federal government. While the bottom 40 percent of US households make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment. Meaning we have half the people getting something for nothing. Not a bad deal for them.

Consumer credit slid $11.5 billion in February. Now declining 12 of the past 13 months. The year over year trend is running at -4.0%. Less credit is available to start business, buy homes, and create jobs.

Retail sales are up for those stores who are still standing. It must be noted that with no large chain stores like Mervyns or Circuit City plus the legions of mom and pop stores out of business, retailers that are left are going to of course look better than before. Their main competition went bankrupt. Somehow mainstream media fails to grasp that concept.

Sales of foreclosed and distressed homes are rising, representing 29% of all sales in January, just a few points lower than the record 32% in January 2009. US analysts suggest that foreclosures will continue to rise this year. New foreclosures filings are running at a rate of around 300,000 a month, according to RealtyTrac. There are currently some 5 million homeowners that are 90 days or more past due on their mortgages, according to Fannie Mae.

Millions more homeowners who are current on their mortgages owe more than their home is worth. This number is estimated to be north of one out of every five mortgages. In cities like Las Vegas the estimates skyrocket to 80% of all mortgages to be under water. As a result, an increasing number of families are walking away from their homes in a process known in the industry as “strategic default.”

Perhaps the next shoe to drop will come from the under-funded State pension plan arena. This is a disaster waiting to happen and could have a huge negative impact on our economy. An independent analysis of California’s three large pension funds last week, found an over $500 billion shortfall, and according to the NYT, more than six times the value of the California’s current outstanding bonds.

We are in a budding recovery from the depths of the recession, but the question is what kind of recovery are we going to actually have? Many suggest that we will see a typical V- shaped recovery. The stock market seems to be signaling this is what is going to happen. I don't think we've gone through a typical recession, and to expect a typical recovery is more faith-based than factual. We went through massive deleveraging and to date individuals are still deleveraging. This process will take years to fully complete. While the populace has stopped accumulating debt or in some cases, such as mortgages, has just walked away from their obligations, the federal government has stepped in and is now borrowing at lightning speed.

With that said the markets remain bullish, although still on light volume. The heaviest traded day was last Wednesday when the market went down. Next week starts the earnings start season and it is the week before options expire – usually negative week. Technically, we still have a rising wedge pattern and remain very overbought – both negative situations. Riskier investors can continue to play in the current bullish market environment until the pattern changes. I strongly recommend the use of tight stop losses.