Quantifying real demand

John Carney over at The Business Insider calls it "the no more Lehmans" rally. Carney dissects the rally thusly:

"Let’s begin with the basic fact that no one can quite explain why or how we ended the bank crisis. The financial sector faces almost all the same challenges it did last autumn—uncertainty about profits, outdated business models, heavily leveraged balance sheets, self-dealing short term thinking by bonus hungry executives, ineffective regulation and—perhaps most of all—a huge amount of credit assets of extremely questionable value. Many things have actually gotten worse. It’s not just subprime debt anymore. It’s not even just home mortgages. The entire range of debt products that seem shaky—from credit cards, student loans, corporate loans to commercial real estate."

What Carney is explaining here is essentially "bubble re-inflation." It has been clear for months that, absent any real plan to reform the financial industry, the policy machinations -- first under Bush, now under Obama -- we have seen since last fall are all about stabilizing the economy through propping up demand artificially (what else is a bubble but artificial demand of one sort or another).

The bigger question concerns whether or not people support this course of action. As usual, it seems the American people have a hard time turning down something for nothing.

In any event, this rally is a put on. Play the bounces at your discretion, but maintaining recent stock values in such a lousy earnings environment is a pipe dream.