This Rally Is for Suckers, Courtesy of the Fed

By Kevin Spak,  Newser Staff
Posted May 12, 2009 9:37 AM CDT
This Rally Is for Suckers, Courtesy of the Fed
Specialist Frank Masiello works at his post on the floor of the New York Stock Exchange Wednesday, April 29, 2009.   (AP Photo/Richard Drew)

(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?” (Read more stock market stories.)

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