Yesterday the S&P 500 closed at a low for the year, lower even than on Jan. 21 when the Fed surprised the market with its 75bp cut. That was an act of attempted market manipulation by the plunge protection team (PPT). I said then on this blog that there would be a short-lived rally and that the market would sink back to its lows, which it has. That is because there is no force that can stop this bear market from unfolding. It will end only when the bad credits are worked out and business activity, financed by real capital, can advance naturally.

This morning we have a repeat performance, a promise of injected bank funds in higher doses, this time coordinated with other Central banks, and announced before the open. Thus, the pre-open futures trades show s big rally to begin the day.

I can’t think of a more stupid way to prolong and deepen the recession we are already in. The Central bankers, acting on their outmoded and false theories, know not what they do. They think they can stimulate the world economy and avoid the bad debt and malinvestment problems by printing fiat money. They think they can forestall a bear market. They think they can control stock prices.

But they can’t accomplish any of these things with a printing press. They can only make matters worse. Look at the Japanese stock market! After its boom of 1989 and after enormous injections of funds into the banks, their stock market remains far, far lower than its peak. The Nikkei 225 was over 40,000 and it is now 12,658. Is this the fate of American stocks?

The Fed tried to save American stocks in 2001-2002, creating a long-lived rally lasting until mid-2007 that took the S&P 500 back to its peak of 1550 in nominal terms. Now that long rally has failed. The S&P500 is back to 1300. What can we expect of this renewed attempt in 2008 to prevent a bear market? Failure. The system is in much worse shape this time. The excesses and imbalances are worse. The gold price is far higher. The deficits are much larger. The housing industry cannot possibly lead a revival, even if Fannie Mae limits are raised. That will make matters worse, if anything. In terms of psychology, the Fed’s acts will be more clearly seen as desperate moves.

Once again, I think what will occur (the highest likelihood scenario)is a short-lived rally. This one may be even shorter than the last one. It might not even last out today, or it may be only a few days. Even if I am wrong, as there are always other possible scenarios and unknown future events, I think that this act today has no chance of launching a real and solid bull market.

Again I advise: Patience. Wait. When and if conditions arise for a solid new bull market, they will be evident and there will be time to enter the stock market.