Yesterday's Equity Market Rally

Yesterday's equity market surge has been attributed to several factors.

First was Citigroup CEO Vik Pandit's rather tenuous claim that the ailing/failing banking giant managed not to lose money so far this year.

Wow. If that's fuel for a rally, things are pretty bad.

Pandit's statement was totally unsubstantiated. No audited financials. Not even a full quarter's performance. Is this really all it takes to move the market up 6.4%?

Maybe not. Ben Bernanke made obtuse comments about mark-to-market in a pre-market-open address. Nobody with a brain suggests that it should be eliminated or suspended. I've argued for almost two years now that it should be modified to reflect the greater of economic or market value, especially for assets planned to be held for more than a year.

But Bernanke evidently gave reason for some hope, as he opined that it made little sense to take writedowns for paper losses on performing instruments.

For what it's worth, our volatility measure rose significantly with yesterday's market rally. It's near 3%, which is much higher than it's been for probably two months.

In any case, I suspect this was simply a short-term reaction by traders to some unexpected news.

Various pundits, including CNBC's resident senior economic moron, Steve Liesman, claim that Pandit's utterance means that maybe the federal government's various banking palliatives are working.

Fat chance. Citigroup shouldn't even be alive. It should have been seized, its management and board removed, its assets auctioned off, months ago.

For anyone to read into Citigroup's unvalidated performance claims a sign of success of federal financial services sector rescue is to mark that person as naive.

Even if Citigroup does post a profitable quarter, it means little for the economy or the entire banking sector. The bank is now getting funding almost for free. This isn't a sustainable basis for profit.

As I write this, just prior to the market open, the S&P futures are up 9 points, to 725. But I remain unconvinced that the bases for a sustained equity market recovery are in place.

Our put positions for November, December and January were all negative until two weeks ago. Then they moved steadily upwards, leaving all but one comfortably positive. The late-2008 equity market rise was totally erased by late February.

I don't think what is occurring now is much different.