Another Brainless Rally (and Other Stuff)

Stock traders are a funny lot. Tuesday we learn that GM's sales are down 18%, but GM leads the market from a triple-digit loss to close modestly higher. Wednesday, sanity returned, as a Merrill Lynch analyst downgrades GM's stock, reporting the company needs to raise about $15 billion to avoid bankruptcy. GM falls, as does the rest of the market, with the Dow retreating more than 165 points into official bear-market territory, closing more than 20% below October's high.

So this morning, following a report that payroll losses for June exceeded the forecast, and with May's job losses revised higher, plus unemployment insurance claims spiked to near a cyclical high and the service sector contracted, what happens?

GM leads stocks about 70 points higher. Go figure. The only explanation is that most of the traders were gone early for the holiday, as evidenced by the light volume. Apparently only the dumb ones stuck around.

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Moody's is going to examine its computer models to make sure they accurately assess risk, after discovering a glitch in one of them that resulting in rating about $1 billion in complex structured debt AAA, when it should have been rating lower.

Let me repeat that first part: Moody's, one of the big three ratings agencies, is going to examine its computer models to make sure they accurately assess risk.

Are you kidding me?? Shouldn't this have been done before the models were used to assess risk and assign ratings? Can we believe anything the ratings agencies say anymore?

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Memo to Hank Paulson (to steal a film title from The Talking Heads): stop making sense. Seriously, you're scaring me. You've never made sense before. Are you well?

Hank recently expressed the opinion that the government should not be in the business of bailing out big financial firms. Some notable quotes: "We need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm ... Two concerns underpin expectations of regulatory intervention to prevent a failure. They are that an institution may be too interconnected to fail or too big to fail. We must take steps to reduce the perception that this is so - and that requires that we reduce the likelihood that it is so."

I wholeheartedly agree, as a free-market guy. It's just a shame Hank didn't hold these views when he and his pal Helicopter Ben put taxpayers' money on the line to bail out Bear Stearns.

Hank now says he thinks presidential approval should be required for such action. I know that he, Ben, New York Fed Bank President Tim Geithner, and Jamie Dimon, CEO of JP Morgan Chase (which received a windfall when it got Bear for a song and at the same time got to off-load $30 billion of Bear's most toxic waste to a shell company created by the Fed and funded by taxpayers), were all in on the talks to rescue Bear. I don't recall hearing anything about the President being consulted.

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Another sign of the times: arson is up this year. Why? Home foreclosures. There were four suspicious fires that destroyed foreclosed homes in New Bedford, Massachusetts in April alone. Fire chiefs in hard-hit states like California, Nevada, Massachusetts and Ohio are seeing more foreclosed houses burn, as the defaulted owners seek to collect insurance money or thrill seekers set empty houses ablaze.

Wow.

On that note, have a safe Fourth of July, and remember why you're celebrating. Freedom isn't free.