The New Bubble

The new stock market bubble is in full effect.

Wall Street rose Monday, pushing the major gauges to multi-month highs, as a better-than-expected housing market report intensified hopes that the economy is closer to stabilizing.

The Dow Jones industrial average (INDU) gained 214 points, or 2.6%, according to early tallies, ending at the highest point since Jan. 13. The S&P 500 (SPX) index added nearly 30 points or 3.4%, ending above 900 for the first time since Jan. 8 and turning higher for the year.

The Nasdaq composite (COMP) rose 44 points, or 2.6% and ended at the highest point since Nov. 4.

Stocks have been surging over the last two months on bets that the worst for the economy is over. Those bets were furthered Monday by the day's economic reports.

But that's just it...the worst isn't over. We still have 14 million homeowners underwater and that's going to get worse. Unemployment continues to rise with 600,000 jobs a month being lost, and that will continue. Home prices still are falling, and there's a load of ARM that are primed to reset in 2009. The cramdown provision failed in the Senate, meaning it will be harder for Americans to keep their homes. The commercial real estate tsunami is just beginning...and all of it will only make any hope of recovery much dimmer, not much more likely. You can't have a recovering consumer-driven economy when wages are falling, inflation is on the way up and unemployment is rising. That's a recipe for another Japanese-style Lost Decade.

Yet the stock market has roared into a 30% gain in the last 2 months. The markets are betting hard on everything being over and America recovering like nothing bad happened. But the reality is nothing could be further from the truth. This is all a massive speculatory bubble. The slightest bit of news that shows that the economy isn't plummeting into freefall means BUY BUY BUY.

We're looking at one of the great Dead Cat Bounces in history here. The S&P 500 has gone from 670 to 900 in less than 60days. At this rate we'll indeed be back in Bush Boom territory by the end of the year. At 225 points in 60 days, we'd be close to 1,700 by 2010. That's impossible.

This one's going to pop, folks. It's not a correction. It's not a new bull market. It's a bubble, plain and simple. When this one goes, it'll flatten the economy.