The rally that failed to appear after the Independence Day holiday came this week. All markets made gains, The DJIA gained 612 ponts, The S&P500 62.6 and the FTSE 261 ponits.  It seemed to be another week when and good news was exaggerated and any bad news ignored.  Mind you the fact that the July options expired on Friday could have had a bit to do with it.

Much has been made of “more than expected” housing starts. It’s summer in the states, if you were building a house, summer is the time to do it. It is not a reason for jubilation, it is just common sense.

Another reason for the rally was the “stellar” performance of JP Morgan and Goldman Sachs.  There are two paragraphs from this weeks letter from John Mauldin that I would like to quote.

In the first few years of the G.W. Bush administration, the banking authorities decided it would be OK to allow five banks to increase their leverage from 12:1 up to 30:1. Which five banks, you ask? Bear Stearns, Lehman, Merrill Lynch, JPMorgan, and Goldman Sachs. How did that work out, just five years later? Three are gone and two survived with large dollops of taxpayer money.

(Sidebar: Is it really any surprise that Goldman and JPMorgan are making record profits on the underwriting and trading side of the business? Hell, if I could eliminate 50% of my competition, my profits would grow too! JPMorgan’s consumer credit, credit card, and other business groups are losing money big-time.)

John Mauldin’s letter this week is largely about banks and leverage and how the banks in Europe have an even bigger problem. His warning of removing sharp objects and pour another adult drink are not in jest.  We are not out of the woods yet.

Another two banks in the US hit the wall this week, both from Southern California, bringing the total for the year to 57.  CIT Group has been in the headlines this week, their plight has not rattled the markets though.  Evidently they are now in talks with (guess who) JP Morgan and Goldman Sachs about short term financing, but bankruptcy is still possible.

An article tells how thousands of people are running out of their unemployment benefits. By the end of September more than 500,000 will exhaust their benefits payments.  What do you do when you have no job and no benefit payment coming in?  It’s not a position I would want to be in. Some say things are improving,  the evidence is more like not getting worse as fast, but still getting worse.