The bulls are clearly back in charge of the stock market. Companies report poor results and/or poor forecasts, the shares sell off and are then bid right back up again. Any bad news is deemed to be the last bad news, the future is rosy as the bailing buckets from a panicking government swing ever faster. Too bad the leaks are getting bigger, as the credit meltdown in housing is spreading to commercial real estate and corporate securities.

Hopefully the rally has enough legs to create a really good shorting opportunity. Looks like the energy price bubble is at least cracking, with crude oil now down about $20 from its peak. If oil continues to drop, which it should as the recession bites, doubtless there will be a boost to bullish sentiment. At some point, though, folks will figure out that oil isn’t and wasn’t the problem, just a gratuitous piling-on. The real problem is that the financial system is gravely wounded. The broker/dealers were the first to suffer, because they are both more aggressive and more leveraged. But the pain will trickle down to the smallest bank, with 60% of domestic loans in real estate, how can it not?