Wells Fargo posts a profit? Huh?

Last month the economy was in "collapse" and we needed to spend tax dollars to "save the banking system."

This month the banking system is posting profits? I guess I ought to be happy that the banks are doing better but this change comes so soon, it just doesnt feel right.

This week the other big banks will announce their results. If they post profits, watch out.

The anger felt by the public towards AIG will surge onto banks and there will be some 'splaining to do. What's more, the general sense that we dont know who we can trust will only get worse. Our system depends so much on the "greater fool' theory, but right now the public is starting to worry that they are the fool.

Are we really ready for recovery so soon?

Even though the stock market bounces up and down, I dont think so. There is a lot of news, good and bad, and one has to take as much as you can into account and guess.

My concern is debt. If you have ever gotten yourself into credit card debt, you know that it is much easier to charge the card up than it is to pay it back down. There may be a "glimmer of hope" but we have a lot of bad debt to pay back down and like any diet, it is not pleasant and it takes a lot longer than we think it will.

This interview on Friday with the News Hour was a good summary of some of the problems still out there.

Obama Optimistic, Yet Cautious on Economic Recovery Outlook

The president said Friday he saw "glimmers of hope" in increased lending to small businesses, but the economy was still under "under severe stress." Analysts discuss the signs of economic recovery and the road ahead.

Credit card debt is continuing to go bad and so is commercial real estate. Add that to the existing housing debt and I see a lot of pain for lenders and bond investors. Banks may post a profit; stock markets may go up, but losses are still coming.

Another issue is that FASB has conceded to political pressure and modified the rules for mark to market accounting for debts. The belief is that this change will let banks hide their bad debts for longer. Instead of going bankrupt now, they will trickle out the losses over time, probably years -- just like Japan did.

On the one hand that might be a good thing, lots of little pains instead of a heart attack, on the other hand some of us wanted to rip off the band aid and get it over with. Its clear that wont happen and the Obama administration wants to stall.

It is April 2009 and the S&P500 is about 8,000. I am with the folks that think this is a bear rally and we will soon be "testing new lows".