I wrote yesterday we were due for a bounce, but how high?  On the S&P500 800 should be the resistance, 8,000 on the DJIA and 4,000 on the FTSE.

Yesterday Bernanke “Sees 2010 Recoverery ‘Only If’ Banks Stabilize”.  That is a big ask.  What kept the bubble inflated was the consumer, for years taking equity out of their houses and spending it. Now they owe more on the house than it is worth, or they have already lost it to a foreclosure.  Another headline says “Housing Prices in 20 US Cities Fall a record 18.5%”. The US economy is not going to improve until the consumer regains some confidence.  In the current circumstances that is another big ask.  Last night the Conference Board reading of Consumer Confidence came in at a record low of 25.0 when the economists were expecting 35. On Friday the revised Michigan Sentiment is released.

The bounce in the US was lead by the banks after President Obamas speech to congress.  I feel it will be short lived. The indices might not even reach the resistance levels.

So what will convince the consumer to start spending again?  I think they will be cautious about taking on any more debt, even if the banks are prepared to lend them more.  The savings rate is climbing, but that does not help the retailers who need the consumers to spend, and hence help the movement of money through the economy.

I still think the only way out of the US mess is they will  inflate their way out.  That will cause other problems though.  Other countries will have to devalue to keep pace.  And any savings will be destroyed as the value of each currency drops.  Gold hit $1,000 per oz the other day.  What will be the price per oz if global inflation takes hold? Some people predict there will be a flight to gold if past patterns of dealing with inflation hold suggesting $5,000 per oz or even $10,000!!  Oh what a tangled web we weave.