This Rally Is for Suckers, Courtesy of the Fed

By Kevin Spak,  Newser Staff
Posted May 12, 2009 9:37 AM CDT
Specialist Frank Masiello works at his post on the floor of the New York Stock Exchange Wednesday, April 29, 2009.   (AP Photo/Richard Drew)
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(Newser) – The Dow has soared a whopping 30% since March 9, but Andy Kessler doesn’t think the good times are here again. “This sure smells to me like a sucker’s rally,” he writes in the Wall Street Journal. Earnings aren’t up. The market is just responding to three government actions:  

  • The “stress tests” have made nationalizations seem unlikely.
  • With the Fed’s rate at close to zero, only stocks offer decent returns.

  • The Fed is basically printing money, buying $300 billion in bonds and $750 billion in mortgage-backed securities.
The result? A big rally, into which the banks are selling stock to raise capital. “It’s almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than the taxpayers,” writes Kessler. “See why I believe this is a sucker’s rally?”