Stocks move higher on promises promises promises

Well the market is higher today as the Fed and the government went into full pump mode. The Fed tried to do a little damage control from their weak statement by saying the Fed will most likely stay at 2%. Here is the piece from Bloomberg.

I will believe that when I see it. The economic data continues to slow, and the Fed has shown that they have no backbone when it comes to holding rates when the economy is weak.

The dollar bounced on the Fed news which hurt commodities. Paulson was also out their blabbering that the worst of the credit crisis is behind us.

There is also talk of a new bailout plan(how many of these have we seen). See the Paulson article. Here is how it would work:

"FDIC Proposal
Federal Deposit Insurance Committee Chairman Sheila Bair today said Congress should authorize the Treasury to make home loans to help pay down as much as 20 percent of the principal on mortgages.

Under the FDIC plan, borrowers would be responsible for paying back the loan and the restructured mortgage. Participation would be restricted to Americans in owner-occupied homes with mortgages obtained between January 2003 and June 2007 whose monthly payments exceed 40 percent of household income."

My Take:

Another stupid proposal. These 2003-2007 borrowers simply can't afford the house and bought at the top. This would be a mess if it got approved. How would these loans be structured?

The proposal calls for the treasury part of the loan to start getting paid back 5 years after the new loan was structured. Like all of the other bailout plans, all this will do is postpone the inevitable outcome of foreclosure. This proposal will fail like all of the others. You don't hear much about 'Hope Now' anymore now do you?

This plan also would also do nothing for speculators and condo buyers because they can't qualify.

I've got a brilliant idea. How about we let housing prices fall back to affordable levels and let the housing market naturally correct itself?

Housing cannot be saved at unaffordable levels!!! It does nothing but destroy the housing market going forward because no one will be able to afford to qualify for a loan. I still say any serious government plan will only happen after prices are at or near the bottom. Consider this government hype nothing but lip service.

The sad part about all of these promises is it brings false hope back to the stock market which is soaring as I write to you right now. The "buy the bottom mania" continues when the Fed and government come out and make promises they know they can't keep.

Here is your "reality check" on the data released today:

Here is what is really going on in the economy. Manufacturing shrunk for a third straight month and the jobless claims report for the week came in higher than expected at 380,000. There are now 3 million Americans out of work which is the highest number since 2004. Here it is from Bloomberg:

"Manufacturing in the U.S. shrank for a third month and rising prices eroded consumers' buying power as the six-year economic expansion ground to a halt.

The factory index compiled by the Tempe, Arizona-based Institute for Supply Management was unchanged at 48.6 in April. The Commerce Department said consumer spending rose 0.4 percent in March. Stripping out the effect of inflation, purchases were up 0.1 percent after stagnating the previous month.

The ISM report indicated no sign of improvement from the first quarter, when only a jump in inventories prevented the economy from shrinking. Consumers and manufacturers are struggling with rising prices and the worst housing slump in a quarter century.

The Labor Department reported separately that first-time claims for unemployment insurance rose more than forecast last week, to 380,000. The total number of Americans receiving benefits climbed to 3.019 million, the highest level since April 2004.

``Consumers are struggling,'' said Ryan Sweet, an economist at Moody's Economy.com in West Chester, Pennsylvania. ``Their finances are being squeezed on two fronts: they're getting pressure from higher energy prices and slower income and job growth.''

The spending report, which also showed incomes increased a smaller-than-forecast 0.3 percent, indicated households spent mainly on services such as medical care and utilities, and bought fewer big-ticket items such as cars and furniture.

The inflation measure tracked by the Fed, which strips out food and fuel prices, increased 0.2 percent after a 0.1 percent gain the previous month. It rose 2.1 percent from March 2007, compared with a median estimate of 2 percent."

Final Take:

Quite a difference between what the government is saying versus what the economic data shows isn't it? The numbers above speak for themselves. They are terrible and people are starting to really struggle.

So who are you going to believe? The lip service from the Paulson and the Fed, or the hard data showing how the housing slowdown, inflation, and the higher unemployment is killing the consumer.

I will take the data over lip service any day of the week.