Last night (for us down under) Treasury Secretary Geithner finally got around to spelling out how the banks getting rid of their toxic assets would work.  Although nothing has changed in the economy, the markets went ballistic.  The S&P500 punched through the 800 point resistance, the DJIA made nearly 500 points. 

Lets look at the facts, jobs are still being lost at around 600,000 per week, company profits, except the banks now, are hemorrhaging red ink. Foreclosures are continuing to climb.  The car industry is going from bad to worse.

The talking heads on the networks were all bright and cheerful that the worst is now over, talking of a new bull rally.  Not so fast, this is a bear market rally, not a bull rally.  Most of yesterdays action was due to big gains in the financial sector.  Existing Home sales report released last night showed an increase over the previous month by 230,000, but remember most of these existing home sales are foreclosed homes going for knock down prices.

The theory is that by removing the toxic assets from the bank’s balance sheets cash is freed up for the bank to lend.  But the consumer has changed from reckless to cautious.  Banks have changed from reckless to cautious. So even with more free money in their coffers, they need to find safe places and people to lend the money.  Not as simple as it sounds.

However, as we have seen time and time again, the markets can be irrational.