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According to the cable news network talking heads and self appointed stock market gurus all is once again swell in the stock market. “Jump back in”, they say. “You will miss the rally off the bottom if you don’t hurry”.

Never mind that these are the same blind happy talk gurus who told everyone to buy, buy, buy, all the way down. Money grubbers like Jim Cramer and the rest of the MNBC crowd, for example. What shameless pimps for the financial services industry. However, I do have to give them credit — they know very well how to make money — for themselves as TV entertainers. As for “investors” who follow them over the long term, well lot’s of luck. You are going to need it.

After the rally of the past six weeks a good question is “Is the bounce still bouncing?” Bill Bonner asks, no doubt with a longer time frame in mind. “We don’t know. But we don’t trust it. They say the stock market ‘looks ahead.’ So it is possible for it to see things we can’t see. On the other hand, what was it looking at two years ago? Didn’t it see the economy going over a cliff? Apparently not.

“But investors tend to believe what they want to believe. And what they want to believe is that the stock market has had its vision corrected and now sees a recovery.

“Our guess is that they are wrong on both scores. The stock market is just as blind now as it was in early 2007… and there is no recovery coming anytime soon. By our reckoning, this is not a recession… this is a depression. In a recession, the bull market formula still works. It just needs a little time to rest… catch its breath… work off inventories… and rebuild cash accounts. But in a depression, the formula stops working.

“The feds have responded with zero interest rates… and $13 trillion worth of bailouts and boondoggles. But the old magic doesn’t seem to work anymore. This time, the formula no longer works. Consumers already have too much stuff — and no way to pay for it all. They have no choice; they have to cut back. This is not a pause in the long cycle of increasing consumption, debt and speculation. It is a reversal of the cycle — with less consumption and less debt (more savings). This is a depression.

“If left alone, this cycle will see falling asset prices, falling bond prices and rising savings for many years. Stocks should sell down to levels where they are attractive again — at average P/Es below 8… 7… or even 6. And with dividend yields above 5%.”

As you can tell Bill Bonner has grave concerns about the nature of this rally. I share those concerns. With residential real estate still in a funk, commercial real estate about to take the fall, unemployment still raising, and the government spending outrageous amounts of money that it doesn’t have except inside the Fed’s imagination and computer hard drives to bailout its Wall Street and big bank buddies, the fundamentals are just not there. It is unlikely that the market will turn around and stay turned around for very long.

Once policy makers, the America people, and investors realize that a financial earthquake has occurred and that we will not return to the “good old days” of a consumer driven economy look for a dive to depression stock levels. That means PE’s at about 6 or so and the out right failure of quite a few household name companies, like for example GM and nearly the entire domestic Airline industry.

Good people, the happy motoring from your distance subdivision to the humongous shopping malls days are over. For more on this see The Long Crisis.

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