The Corner

A Well-Earned Rally for the Investor Class

Stocks had a huge rally today, including a Dow gain of 235 points. This is a very important signal of economic-recovery confidence. At least that’s how I’m reading it.

The brief correction appears to be over. And all sorts of important technical breakouts were registered in today’s bullish trading. Despite the future threats from Team Obama about command-and-control economics, corporate tax hikes, nationalized health care, and the cap-and-trade tax, the most important reality for share prices is still the near-term expectation of a cyclical economic recovery.

Long-term prospects are not nearly as good because of the administration’s lurch to the left and war against capital. But the stock market has in its sights a second-half economic rebound that will carry through next year.

Most of this rebound is a function of massive Fed liquidity pump-priming and the steeply upward-sloping Treasury yield curve. These factors will stimulate total spending in the economy, coupled with bank profitability.

Other good news out there: The communists were put to rout in the Indian elections. This suggests that India will take new steps to liberalize its economy, including foreign investment, free trade, privatization, and tax cuts. This is a big plus for global economic recovery. And the Indian elections may well have triggered the stock rally right from the opening bell this morning.

Plus: Morgan Stanley will probably de-TARP, along with Goldman Sachs, JPMorgan, and perhaps others. No one knows for sure, but I think of de-TARPing as a kind of falling of the Berlin Wall. Let economic freedom ring. Let banks get out from under the yoke of government controls.

Yes, there will be shareholder dilution as the banks raise new equity capital. But the thought of banks freeing themselves from Team Obama way offsets any near-term dilution issues.

And out on the Left Coast, California voters look set to deny big state-government taxing-and-spending initiatives in tomorrow’s election. It’s a Prop 13-like vote. And it suggests that the Tea Party movement is in fact indicative of a tax-and-spend revolt going on around the country.

All of this combined to give the investor class a well-earned rally in today’s stock market.

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