A House Built on Sand or Stone?

In the Bible, Jesus told a parable of two men. One built his house on sand, and the other built his house on stone. When the rains came, the house that was built on sand collapsed with a mighty crash. However the house built on stone endured the test of time and weathered the storm.

This parable reminds me of the current economic conditions inside the United States and abroad. Consider the following actions that the U.S. government has taken to prop-up the economy:

1. FASB-Have eased requirements on the mark to market accounting rules. Banks are once again allowed to estimate the value of assets. Even the assets that have no apparent value. This accounting change (by an organization as Boom and Doom characterized as ultra-conservative)suggests that additional pressure may have been applied to give banks more "breathing room."

2. A spirit of cooperation of G20 leaders, who by in large want massive regulations on the entire financial industry in general, and financials in particular. Note that the United States has resisted the scrutiny that many Europeans apply to their institutions. It is not that greed is not present in European banks, it is more of a concern of systemic risk that financials can cause in the global market.

3. IMF will release 403 tons of gold to the open market. While this decision is "raise" capital for the IMF and distribute funds to the poorest countries in the world, understand that the release of such a large amount of gold on the world market will in fact, drive the price of gold down. This could be an opportunity to short several gold producers like Newmont Mining, or Anglo Ashanti.

4. Under promising, and over-delivering. Results on the Economic Calendar have at best been neutral to negative. However, the neutral to negative numbers have been cause for rally. For instance, yesterday's unemployment report was bad, but the report shed 80,000 less jobs than forecast. Please note that the previous months unemployment numbers had a massive revision upward to 8.5%. In my humble opinion, unemployment in closer to 9.2%.

5. We are reminded that the role of media is to report the news. Report the facts, analyze the story, and pursue various angles of the players in each story. However, media sources including CNBC continue to make the news. Just ask Cramer the depression that never was, is over. Time to get back in to the market.

6. Leaks from the White House banking meeting and internal memos where Bank of America, and other companies are ready to start repaying the government TARP funds, so these institutions can get off the path to regulation. It would also suggest that a miraculous turn around has taken place, in an economic environment which by in large has been less than friendly to business.

7. Government manipulation in some type of uptick rule. This move will continue to allow a run to the upside, while putting pressure on short positions. Note that short rules were applied on two separate occasions last summer, but did not have the desired long-term effects keeping the market inflated.

In closing, I leave readers with several parting thoughts. Is this recovery built on sand or stone? Can we buy into this market's upside, the hype, the movement in stocks, and the era of good feeling that is being created on various media sources? We can deny that events which have created the current financial mess, no longer exist. Secondly, we can use logic and reason to suggest that the fix is in, and jump on the band wagon until the market hits 14,000 again. Last, we can assume that this market will re-test the lows sooner than later understanding that a market which moves up quickly, can in fact move down quickly as well. As for miracles, I will leave those to Jesus.