Has the Bear Market Rally Ended?

It's been over a month since I last posted a blog. It's incredible how much can happen within a month. Here's what went down. Around February 10th, the market began a steady free fall over the course of a month, with the S&P and Dow dipping below the November 2008 lows. We were at the lowest point since April 1997 (if I remember correctly). Then came a true bear market rally, with markets up for about six consecutive days. Today ended the rally.

Economic News.

No major economic news broke today. Yesterday, however, was a suprise Fed move to purchase $300 billion of US Treasuries and over a trillion of Fannie and Freddie securities. Known as quantitative easing, it is argued that the Fed took the surprise approach to demonstrate that it is deadly serious about ensuring that credit markets are brought back to life.

Market Reaction.

Yesterday's move by the Fed caused a rally in equities, but, as economic fundamentals would suggest, bond yields and the dollar fell dramatically. Some fear that continued quantitative easing will create significant inflation in the medium and long term that will be difficult to contain. Also, many are worried that the Fed is stretching its balance sheet to unprecedented levels.

China is in the uncomfortable position of having to continue to purchase US Treasuries, despite the increasing likelihood that the dollar will fall sharply under the weight of too much debt in the US.

Stocks.

My timing on GE in early February couldn't have been worse. Despite the dividend cut to preserve cash (which investors reacted favorably to), GE's debt rating was ultimately cut. Before the cut was even announced, GE was battered and I saw it fall from about $12 (where I bought in) to $6!! Only after the cut and the S&P's "stable" outlook did GE begin to rise. It also rode the bear market rally. Let's hope it gets back to $12 or higher.

Ambac went down to .50 cents. I SHOULD HAVE BOUGHT IT!! Since that low, it's now back to about .90 cents. That's almost a 100% rise.

Mental Investment Note to Myself

The markets are unpredictable. Understand the trends as much as possible. When you see a stock that is completely undervalued, buy it. Don't hesitate. Otherwise you'll see, in some cases, 100% returns pass you by.