*****Now that was a good old-fashioned rebound. The Dow Industrials jumped a record 936 points, or 11%. The NASDAQ was up 195 points.

Of course, with the bond market closed for Columbus Day, stocks pretty much had a free pass yesterday.

Despite the nice point totals, I still have to wonder if these gains will stick over the long term. Volume wasn’t particularly heavy.

Like I pointed out yesterday, the emergency G-7 meeting over the weekend failed to produce any concrete plans of action. And Paulson is still mulling what to do.

Buying bank stocks is a start. But the U.S is still far behind England when it comes to moving quickly to restore some semblance of stability to financial markets.

Recall that the U.K. has guaranteed inter-bank loans, set interest rates for such loans, made cash available to banks and is even taking majority stakes in three troubled firms.

Meanwhile, Paulson is "seriously considering" a few things. All I can say is they better hurry. Monday’s euphoria will fade.

*****Even if Paulson follows the U.K.‘s lead to the letter, it doesn’t mean the U.S. economy returns to growth. There are a number of headwinds that will likely keep the pressure on the economy and stock prices.

As you know, my number one worry is unemployment. The unemployment rate is currently 6.1%. And since it’s pretty much a consensus that the U.S. is in a recession. Estimates for unemployment are rising to between 7% and 8%.

Obviously, those numbers would be the worst since the early 90s. And there’s no way stocks will stage a comeback so long as unemployment is rising.

Forecasts for commodity prices are coming down. One analyst notes that copper is still three times higher than it was in 2001. And Goldman Sachs analysts are now saying that oil prices could drop into the $50s. Steel prices are also coming down.

And that’s not all. One analyst says corporate IT spending will fall 5%, or $170 billion in 2009. That’s not a good sign for tech stocks. If you remember the Nasdaq bear market from 2000-2002, that’s exactly what happened then, too.

Corporations cut spending and the likes of Intel (Nasdaq:INTC) and Microsoft (Nasdaq:MSFT) get killed. Intel reports earnings this afternoon, and what the company says will be very important for the future direction of the Nasdaq.

It will be interesting to see how consumer oriented tech stocks like Apple (Nasdaq:AAPL) fare.

*****Most economists are calling for the worst global recession since 1982. The IMF puts growth at 3% for 2009. Harvard Economics professor and former chief economist for the IMF Kenneth Rogoff says we should knock 2 points off that estimate.

So while stocks may look like a bargain right now, there’s plenty of reason to think earnings estimates for 2009 are coming down. S&P 500 analysts are currently expecting record 3rd and 4th quarter profits.

Profits dropped 7.5% in the second quarter. But analysts are still expecting a 22% jump to a record $222 billion for the third quarter and to post another record $241 billion for the 4th quarter.

Needless to say, a lot of market strategists say those numbers are too high. And with lower earnings, stocks won’t look as attractive as they do right now.

*****I’m still a bit haunted by what Lehman CEO Richard Fuld said in his Congressional testimony last week.

"Until the day they put me in the ground I will wonder," Fuld said. "I do not know why we were the only one."

He means Lehman Brothers was the only investment bank that was left to fail. AIG, Freddie Mac and Fannie Mae were rescued. The Fed stepped in to broker deals for Bear Stearns and Morgan Stanley.

Only Lehman was left to fail. Yesterday, Germany‘s financial regulator said Lehman’s bankruptcy cost $300 billion outside the U.S. Apparently, Paulson didn’t think those losses were worth protecting against. Sounds to me like he had a personal vendetta with Lehman’s Fuld. And that’s clearly no way to run financial policy.

Published by Wyatt Investment Research at