This Rally Is Getting Ahead of Itself

Safety is dead last. This rally is pure optimism. Pure acceleration of economies. Pure in-the-face of everything you read in the papers and hear on air.

Honestly, have you heard a single good word about the economy? But steel, iron, equipment, oil and electronics are just on fire. The bullishness here for an Eaton (ETN - commentary - Trade Now) or a BHP Billiton (BHP - commentary - Trade Now) or a Freeport-McMoRan (FCX - commentary - Trade Now) is remarkable. You do not get this kind of money when things are just plain bad.

I know that China is strong. But is Cisco (CSCO - commentary - Trade Now) strong? Union Pacific (UNP - commentary - Trade Now) strong? Occidental (OXY - commentary - Trade Now) strong?

You have to respect the market's forecasting. This rally, which includes gigantic out-of-soft-goods selling, indicates boom. But where is the boom going to come from? Our stimulus package, which doesn't really build much? European stimulus, when there's no real sign of any turn there? The heavy equipment segment of this market is so strong. That's indicative of a big surge in homebuilding and office building. But as much as homebuilding is moving from the 400,000 to the 500,000 level, that's not going to move the Caterpillar (CAT - commentary - Trade Now) needle. Commercial real estate? Could there be a day when there's anything good at all mentioned in that segment?

Meanwhile, we read about autos being priced too high, and here we are struggling for a 10 million build. It is, again, true that there is endless cost-cutting, which is moving the bottom line endlessly in places like Eaton and Johnson Controls (JCI - commentary - Trade Now), but you would expect to see the funding of operations domestically -- Wells Fargo (WFC - commentary - Trade Now) and Bank of America (BAC - commentary - Trade Now) soaring -- and you would think that General Electric (GE - commentary - Trade Now) should be on fire if these stocks are right.

Not happening.

Are we gun-jumping? Is FedEx (FDX - commentary - Trade Now) at $60 gun-jumping? Is Transocean (RIG - commentary - Trade Now) gun-jumping? Occidental? Caterpillar? To me, this rally says something different. You are going to be annualizing some really bad numbers soon. You are going to be annualizing the Lehman quarter. You are going to see things improve when compared with last year for companies with stocks that have been crushed, like Joy Global (JOYG - commentary - Trade Now) and Bucyrus (BUCY - commentary - Trade Now) and Dow Chemical (DOW - commentary - Trade Now) and DuPont (DD - commentary - Trade Now). But the depression didn't happen, and many prices still reflect it.

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