Fed said the recent rally has no legs and was not the end of the bear market.

Many market analysts believed the rally was fueled by the growing hope that an economic recovery would start this summer. After all it is common knowledge that the market typically bottoms approximately six months before the economy bottoms. That is why the stock market is considered a leading indicator of economic activity. In fact the Fed had previously forecast in January that GDP would start to recover in the second half of this year and that the economy would grow between 2.5% and 3.3% in 2010. So the FED itself gave Jim Cramer and other analysts the hope that a bull market had begun. Now the FED has retracted that hope.

According to the minutes of the Fed's latest policy meeting the FED said that gross domestic product, the broadest measure of economic activity, is likely to expand only slowly starting next year not this summer. That means the recent rally is at least six months premature of the coming bull market. In fact the FED could postpone their recovery prediction every time they meet. The central bank had also projected in January that unemployment would peak at 8.5% to 8.8% this year and fall to a range of 8% to 8.3% in 2010. But now the FED says that it expects the unemployment rate to rise more steeply into early next year before "flattening out at a high level over the rest of the year." The unemployment rate hit 8.5% nationwide in March, up from 8.1% a month earlier.

The Treasury Secretary is refusing to comment on the much publicized bank stress tests because it is surmised that the results show the TARP program may need to be expanded another $2 Trillion to calm the banking system.

We still believe with the next pull back we will be near what will be the low for the next ten years but we caution that given this administration’s corruption, profligate spending and socialist leanings they could stagnate the American economy for the next ten years as Franklin D Roosevelt did through the 1930s and as the Japanese did to their economy through the 1990s.


Market forces

The market yesterday rose on very low volume indicating the rally was out of steam.

Investors now fear that the trillions of dollars the government will print to finance the stimulation package will have great negative currency and inflation repercussions starting in six months. FDR made the same mistake during the Great Depression. Corruption was so bad during the FDR administration that FDR chose Harry Truman to run as his last vice presidential running mate because Harry Truman was nationally known to be cleaning up corruption in Missouri. Truman had no other known qualifications other than his extreme honesty.

Market Outlook

All the signs are saying it is time to cherry pick into a positive market position and the market retests its lows. All shorts should already be covered and profit taking should be done. Now it is time to look for the new bargains.

Asian shares were up last night with Shanghai (China) up 1.4%, India up 0.6%, Japan up 3.7% and Hong Kong up 1.4%.

European markets are currently up in the range of -.1% to +0.9% mid way through their day today. .

US futures indicate the American markets will start the day flat. All the American equities markets remain extremely over bought. The FED indicated that the recession is here at least to the end of this year and they will revise their prediction of the eventual bottom of the economy in another six weeks. The US market decline will present select opportunities to astute investors seeking value by catching individual stocks that are forced down into higher value ranges.