I think you have to be a real optimist to be long in a market (S&P 500) that has  a P/E exceeding 700. Yes, I know that recessions can exhibit extremely high P/Es simply because earnings are missing in action. But, even so, that means you are betting on the come. S&P estimates that 12-month earnings for the September quarter will be negative for the first time in history. This morning’s GDP number shows that even the huge money flood pumped in by the administration couldn’t get a positive growth number. Maybe the “cash for clunkers” program, apparently sold out after four days, will solve the problem. (Edit: apparently the house just voted to throw another 2 billion Benbabwes at the program). What an idea. We’ll subsidize house buying with a big tax break and car buying with a cash bonus. Dammit, we will pull forward every last ounce of potential demand!

All I ask is, and then what?

I looked at the NDX chart this morning. It seems far from inconceivable that it could recover the 2000-or-so levels at which last fall’s glissando began. Whatever, a do-over of that would be far from a bad thing for yours very truly. Especially since the end of the glissando would likely be several octaves lower than the previous attempt.And this time I promise myself I will do a better job of holding short to the bitter end (my favorite moorage, next to Saba Rock). I made quite a bit of money on the decline, but could have made more. Hopefully I’m smarter now. (Yeah right).

What is clear is that Mr Bernanke and his buddies have successfully postponed the end of the credit bubble by blowing a new mini-bubble. Which now needs to be popped. And will be. In the meantime, the economy is very sick because, despite Mr B’s best efforts, all he is doing is providing life support. There’s not enough juice to get back to real bubble-ville, where everyone can spend freely regardless of income or credit worthiness.

I’m just too stubborn to join in the party, I’m afraid. Too bad for me. But hey, go ahead, pump it up. I’ll roll my puts out and up and we can go for the gusto. It is just a matter of time. I can wait. Hey, if Calpers is adding risk then I know we are doomed. When the patsy doubles his bets because he’s losing, the smart money at the table smells blood. To mix more than a few metaphors, but you know what I mean.

News flash! Whether or not the “recession” is “over” is irrelevant. The debt problem is not solved and in fact is continuing to deteriorate at the hands of the Obama administration. Mr Bernanke, now touring the country campaigning for re-appointment, continues to engineer public debt growth to replace the growth in private debt that was previously funding consumption.

Aggregate debt becomes more burdensome every day, and continues to drag down both consumption and investment. Bank failures will increase as debt service crushes borrowers, and unemployment will continue to rise. The administration is desperately trying to put off the day of reckoning, and is succeeding to some extent, but at the price of raising the ultimate bill.

I’ve certainly suffered drawdown in this buying panic, and indeed have reduced risk everywhere in my portfolio because of the insanity, but I am maintaining my bearish posture and will continue to do so until economic sanity returns. That may be a long time :)

A bullish (at least I regard it as the more bullish case) analysis of the situation is here, from David Rosenberg, former Chief Economist at Merrill Lynch.

The government is merely substituting for the dramatic withdrawal in private sector spending and unless the Obama team manages to implement fiscal package after fiscal package, with the obvious distorting impact on the economy, the risk that the end of the recession only manages to bring on a prolonged period of stagnation is non-trivial and is not priced into the stock market at current valuation levels.

A more complete version, done in cooperation with Tyler Durden of Zerohedge, is here (PDF).

Today the boyz were jamming the regional banks most exposed to commercial real estate (CRE). This was presumably the reason for the bullishness.

Almost $165 billion in U.S. commercial real estate [shops, offices, hotels, apartment buildings and land] loans will mature this year and need to be sold or refinanced as rents and occupancies fall, according to First American CoreLogic.
…
More than 5,000 properties in the 10 biggest U.S. metropolitan areas got at least one default notice in March, marking the first time that’s happened in First American records going back to January 2003.
…
“As long as prices contract, we expect loan performance will worsen and that will make financing difficult,” Sam Khater, senior economist for First American, said in an interview. “Delinquencies and notices of default are rising, and we expect that to continue.”

Feeling under the weather as the result of a bout of food poisoning. So excuse a little acerbity today. I’m talking about moral responsibility, the concept in a civilized society that you take what is due you and not more. Playing by the spirit of the rules, with a sense of fairness, versus playing by the letter of the law, finding loopholes or flaws in the rules and playing them for advantage. The latter, while legal, is often immoral, as I find these examples. From the WSJ:

A California dustup over large pension payments is shining a spotlight on the practice of spiking — increasing a salary just before retirement and boosting the lifelong payout.

Pete Nowicki had been making $186,000 shortly before he retired in January as chief for a fire department shared by the municipalities of Orinda and Moraga in Northern California. Three days before Mr. Nowicki announced he was hanging up his hat, department trustees agreed to increase his salary largely by enabling him to sell unused vacation days and holidays. That helped boost his annual pension to $241,000.

California fire chief Pete Nowicki, who retired in January, receives an annual pension of $241,000 after trustees agreed in December to measures that boosted his salary.

The boost was legal, and Mr. Nowicki said he is receiving a permissible pension. “People point to me as a poster child for pension spiking, but I did not negotiate these rules,” he said.

We understand it is legal, Mr. Nowicki. That doesn’t make it right. Particularly when the state is bankrupt from overpaying bureaucrats like you. And of course there is my particular bugbear, the high frequency traders. A couple of good discussions, here in the NYT, and a lengthy one on Cassandra’s blog. But one quote in particular:

“You want to encourage innovation, and you want to reward companies that have invested in technology and ideas that make the markets more efficient,” said Andrew M. Brooks, head of United States equity trading at T. Rowe Price, a mutual fund and investment company that often competes with and uses high-frequency techniques. “But we’re moving toward a two-tiered marketplace of the high-frequency arbitrage guys, and everyone else. People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.”

Methinks, Mr. Brooks, that we’re there. The markets lost their integrity some time ago. Just like the California politicians and their ilk.