The Running of the Bulls?

After the Intel and Goldman's earnings home runs today you gotta wonder if we might see another leg up here.

We all know this isn't going to end well. My bearish sentiments are now stronger then ever. However, after watching the effectiveness of the spin machine in DC and Wall St since the market lows seen in March, you gotta wonder if we see one more manic push higher in the equity markets.

Why do I suspect this could be the case? Because both the government and the street realize the ramifications of the market breaking through the lows of 666 on the S&P set in March.

WHEN and not if this happens, its going to destroy this country economically. With a 4 or 5 handle on the S&P, many of the companies on the S&P 500 will not be able to fund themselves and will end up in bankruptcy. Unemployment will soar as companies cut back to the the bare bone.

Pension funds will be left unable to fund the pensions that many baby boomers and others depend on for their retirement. We are already seeing the ramifications of a crashing stock market in the pension fund world:

Many corporate and state entities like hospitals are currently being forced to throw millions of new dollars into their pensions as a result of the market crash because they must be fully funded annually by state law. Others must be fully funded based on corporate policy.

This has been a painful reality for many corporate balance sheets in 2009 after watching stocks plummet 50% in 2008. I have heard stories of companies cutting capital spending by 70-80% in order to both make their pensions whole and also cut costs in order to survive the greatest economic crisis seen since The Great Depression.

So how does the market bounce in such an environment?

Because the government understands how catastrophic the pain will be on the other side. Its really that simple. There is NO fundamental reason for the stock market to go up. However, that doesn't mean it can't be manipulated up. If you disagree just look at what has happened since March:

- Job losses have soared as unemployment has risen to 9.5%. U-6 unemployment sits at 16.2%

- Foreclosures and delinquencies on both prime and subprime loans have soared to new highs. (CNBC reported today that 25% of the people foreclosed on still had the ability to make the payments. They have decided to walk away because they are so far underwater and realize they will never get the money back).

- Consumer spending has continued to collapse.

- Business spending just fell for the 9th straight month.

- Commercial Real Estate have been overwhelmed by vacancies and falling rents.

After all of this bad news what has the market done? Moved up about 30%. Huh? Makes no sense right?

The only logical conclusion one can make is that the government simply refuses to face the inevitable collapsing of our economy. As a result, they are using every resource available to avoid facing the music. Wall St is more than happy to help them delay the inevitable. IMO, the TARP infusion into the banks was basically a $700 billion "buy" order on the S&P 500.

In addition, they have also taken advantage of their tremendous resources that come with being the world's largest economy.

Treasuries are a prime example of taking advantage of this situation. The whole world holds the majority of their assets in the US in the form of our treasury debt.

So how has the US thanked them for their support? Well for starters we took rates down to practically zero which means these countries are being paid nothing on their investments. Classy isn't it?

Then to rub salt in their wounds, we started spending ourselves into oblivion which then in turn increases the risk of holding our bonds due to the threat of a potential US default(this is looking more and more probable BTW).

Then, After sticking it to the world twice, we then have the arrogance and the nerve to ask them to buy more of our debt so we can continue our ridiculous irresponsible spending binge.

The Bottom Line:

Desperate times call for desperate measures. I think many of the bears underestimated the ability of the elite to delay the economic nightmare that inevitably will occur.

How much longer can they delay this economic crash? That's the million dollar question. Many think that reality will strike in September or October.

I think the music could possibly go on through the 4th quarter. Remember, the economy collapsed in Q4 last year as the financial system came within a hair of destruction. Companies virtually stopped spending as a result.

This should setup some easy earnings beats at the end of the year because even anemic spending will be enough to beat the 4th quarter numbers from last year where both consumer sand corporations looked like deer caught in the headlights.

This all being said, the fundamentals are horrific. The economy could very well come crashing down late this summer or fall.

Any growth in Q4 will be be an anomaly versus a trend. I expect us to be right back in the soup the following quarter.

The repercussions of our unfathomable spending deficits will be felt for a generation or more. Short term the futures are surging on the earnings beats. Tomorrow should be interesting.