3 month record bull run

The markets are coming off what must be an historic rally. 3 months ago, I said the very brave might want to buy a call "Citigroup (C)" selling at 1. That worked out although it has stalled in the last 2 months. Other stock have rocketed ahead from depressed levels. Dow is up 1/3 & other groups have done better.

But fundamental problems remain, as discussed in the article linked below. Unemployment is over 9%, probably headed for 10+%. That should be a key statistic to focus on. Housing remains in the dumps & may get worse if the Treasury bond yield rises further (see the last chart). Autos are merely bottoming out, but growth looks to be down the road. Retail sales are soggy at best.

I watch high yield sectors which have had a stellar rebound. Their yield spreads over the 10 year Treasury bond, a measure of investors ability to accept risk, have fallen dramatically. Spreads are around 1000 points, still high but down sharply from spreads of 2000+ recently even though the sectors are facing hard times. The vacancy rates for REITs are going up & defaults on junk bonds will increase. MLPs seem to be less affected by recessionary influences, partially because it's less clear what drives their profitability.

Last week, Dow could not advance into the black for 2009. Now it's just a few points away. The 8776 level will be a key test for it to pass.


Market rally hits 3 months, raising questions- AP


Dow Jones Industrials --- 3 months




Alerian MLP Index --- 3 months




Dow Jones REIT Index --- 3 months




Barclays Capital Hi Yld Bond - 3 months




10-Year Treasury Yld Index - 3 months