Michael Shulman

5 Reasons You Shouldn't Bank on This Rally Lasting

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With a severe financial and economic crisis on our hands, which has surfaced no real leadership other than Hank Paulson and Ben Bernanke, there are plenty of things to rant about. But here are my top five:

1. The V-Shaped Recovery School

A V-shaped recovery is about as likely as the Oakland Raiders winning the Super Bowl this year. Here's why:

• Unemployment will continue to rise as businesses lay more people off.
• Consumers continue to pull back spending.
  National income is falling.
• Accumulated consumer wealth is down as much as 40%.
• Credit to consumers and small businesses has contracted by more than $4 trillion, and consumers account for 70% of economic activity in this country, while small business account for 38% of GDP.

I guess the V-shaped recession cheerleaders flunked third-grade math. There are hard times are ahead in 2010.

2. The Idiocy of Wall Street

The Street just doesn't get it. Every day the big wigs of Wall Street are distancing their world from Main Street, and this will only generate a spectacular backlash that has, to date, been suppressed by the Obama administration.

Only one CEO -- the CEO of the only bank that did not get into trouble, Goldman Sachs (GS) -- has apologized for the excess that has put several million people out of work. If I am right and unemployment continues to climb, the folks on Main Street are going to have their day of reckoning with Wall Street, and the result will be overregulation -- perhaps as soon as 2010, an election year. 

3. The Craven Banks

If the Street is bad, the banks are beyond belief. Wells Fargo (WFC) CEO John Stumpf complains about Uncle Sam more than a four-year-old whines at bath time and in the same interview demands that the Treasury has Fannie and Freddie increase the size of the mortgages they insure so his bank can make more money.

Most of the large money center banks are technically insolvent and have been aided and abetted -- perhaps with good reason -- by the Treasury and the Fed in obscuring their losses through accounting changes, fake stress tests and obfuscating public comments. This will wear thin in 2010.