April Was A Winner but May Is Here

If you owned stocks in April, you are wealthier today as the S&P was up 9.4% and the DOW up 7.4% for the month. The economic news wasn't great but earnings season has produced better than expected results for 70% of the companies who have reported. Investors have climbed aboard the stock train as they don't want to miss the road to a stronger economy. We still do not believe the economy will get better until sometime in 2010 as the gloabal financial crisis has a long way to go before the deleveraging process is complete.

The good news is that the Government and the Federal Reserve continue to try and address the big problems. By summer time the auto industry may be streamlined and set on its way to recovery. There may be some pain and fighting to get there but a financial and operational restructuring is definitely needed to allow U.S. auto companies to compete with powerful foreign car companies.

Today is D-Day to find out the details of the Government's stress test for banks. It sounds like there is a bunch of bickering going on about the results and we will have to wait till next week to find out how much capital needs to be raised by some of the banks being scrutinized.

We have been concerned about rising defaults in various consumer loans and the financing of their asset backed deals. The same can be true for the commercial real estate markets. It looks like the Fed is trying to address those issues as it may set up TALF lending facilities for both these markets. The Federal Reserve traditionally only made short term loans but is now considering a program with maturities of three to five years. A successful launch of such a program could be very positive for the economy and the markets. Perhaps investors have seen these tea leaves coming and discounted the results in stock prices.