Automaker Non-Shock

Many subscribers have written to ask if the failure of the automaker bailout in the Senate last night means Detroit is going under and that we’re facing another leg lower in the market.

Congress is not the only option for Detroit. While Congress dinks around over $14 billion for automakers after barely discussing the $700 billion for banks, the White House and the Treasury stand by to help fill the gap. We’ve seen no news on this yet, but I suspect we’ll read today or over the weekend that another part of government will be bridging the span between now and January’s resumption of work in Washington.

Therefore, the bear market rally is not necessarily doomed by this news, for several reasons. First, trouble in Detroit is hardly shocking anymore. It’s been on the front page for a month. Second, a pretty rough economy was priced into the market during November’s rush to S&P; 500 at 750. Third, there remains a lot of hope in the new administration.

Odds of a continuation of the bear market rally a bit farther are good. Don’t set up shop, though. With half a million jobs disappearing monthly and other data showing a tendency toward weakness, we have a ways to go before the magical midpoint of the recession.

As for this morning’s supposedly “shocking” headline, it’s not so shocking as it’s not the first time it’s been a headline.

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