Keep moving up those stop losses!

The Dow took a breather yesterday. The index was down 41 points.

But as far as we can tell, the rally is still underway. The G20 meeting is widely seen as a triumph. The money is flowing. People think we've seen the bottom.

"Cramer: The Depression is over," says a headline. Jim Cramer says the bottom has come and gone. That's all we need to know. If Cramer thinks the worst is over...well, it must be so.

Even Nouriel Roubini, according to Forbes, thinks there is "light at the end of the tunnel."

Japan says it's going to announce another $100 billion stimulus program this week. That should do the trick. After 17 years of bailouts and stimulus programs, the Japanese should be getting good at them. But it's a little like a guy who's getting good at suicide - if he's so good at it, you'd think he'd be dead by now.

But no...the Japanese economy is still one of the worst performers in the world; their bailouts and stimuli have done no good...maybe they've even made the situation worse.

No matter, there's a rally on...this is not the time to ask questions. Our instinct tells us this rally is going to carry the Dow back above 9,000...possibly above 10,000. Why? Because people do not go directly from believing nothing can go wrong to believing that nothing can go right. The kind of delusional optimism that took stocks up to 14,000 on the Dow...and doubled property prices...and had sober bankers buying billions' worth of ticking debt bombs doesn't disappear overnight. It has to be killed like Rasputin - many times. Stab it. Shoot it. And then douse it with gasoline and set it on fire. Maybe then, it will finally die.

That's why this rally is just a trap for the unwary...a suckers' rally. Investors are getting back on their feet just so Mr. Market can whack them again. So, if you're playing this rally...be sure to keep those stops moving up behind your stocks.

So far, this rally has recovered less than 20% of the previous losses. Typically, at least one good rally in a bear market will recover more than half of the losses. Looking at the long term, the Dow rose from the low in the early '30s of only 41 points to the high in 2007, when it was over 14,000 points. This bear market wiped out more than half of the capital gains made by investors during that whole 76-year period. A 50% bounce from the January low would put the Dow back up close to 10,000.

But we gave you our forecast yesterday. Bulls, bears, spenders, savers - our guess is that Mr. Market intends to paddle them all.

The bulls will be whacked when the Dow falls another 50% from its low - down to, say, below 4,000. The bears will be whacked when the Fed seems unable to stop deflation...and the prices in the mining and commodities sectors collapse. Then, the spenders will be trapped in a burning house of debt - with the door barred by deflation. Later, the roof will fall on the savers too - when the feds finally manage to get an inflation backfire going. The fire will get away from them immediately, we predict, burning up trillions worth of savings overnight.

But let's go back to the cheerful tidings out in the press. Sallie Mae says it is ADDING 2,000 jobs. But wait...2,000 jobs isn't really very many. And who are they employing? Debt collectors?

"Consumers fall behind on loans at record rate," says a headline in USA Today.

"A record number of consumers are falling delinquent or into default on their loans, a problem that some economists say will only get worse this year.

"A record 4.2% of consumer loans were delinquent at least 30 days in the fourth quarter, the latest data available, according to the Federal Reserve. Another 4% of consumer loans were in default, meaning they'd been written off by lenders.

"Recent data from the American Bankers Association and Moody's rating agency show the same sobering trend: More consumers are paying late - or not at all - on home, car and credit card loans.

"Job losses are closely correlated to loan defaults, economists say. And as more people become unemployed, they're increasingly giving up on loan payments."

Even sports stars are taking pay cuts. The "incredible shrinking payroll," USA Today calls it. Nearly half the baseball teams in the major leagues have cut their salary costs...by more than $10 million each. The San Diego Padres, for example, took $20 million off their payroll expense.

"The wheels have fallen off the economy," says James Chessen, chief economist for the American Bankers Association. "There have been significant job losses, and that translates into people having a hard time paying their bills."

Employers cut 663,000 jobs last month. That puts the official unemployment rate at 8.5%. It will probably be 10% by the end of the year. Since December 2007, 5.1 million people have lost their jobs, more than 2 million of them this year alone.

But "the worst is likely yet to come," continues USA Today. "Chessen expects consumer loan charge-offs and delinquencies to continue rising through the end of this year."

Move up those trailing stops, dear reader.

"Richard did not speak for long, but when he did he talked about living through the depression and what he remembered:

"He saw Babe Ruth hit a home run.

"He watched Joe Lewis box in 1937 and 1938.

"He saw breadlines all over New York. New Fords were selling for $450 and Democrats were right outside of the Ford store handing out food.

"With a nickel, you could go from NYC to Coney Island.

"The automats were HUGE hangouts because for ten cents you could buy something to eat and sit there all day. People would buy some hot water and put ketchup in it to make tomato soup.

"He paid 75 cents to watch a very young Frank Sinatra perform with Tommy Dorsey.

"He said that, during the depression, a person could not get a job, no matter what. There were no jobs.

"Richard believes that we have not seen the bottom of this bear market. Sentiment turned bullish too quickly and appears to be [offering investors] the 'pause that refreshes to get everyone bullish again' before the downage resumes in earnest.

"The more I think about it, the more interesting it becomes that sentiment has turned bullish so quickly. When bear markets really bottom, sentiment is so negative that it really feels like the blood is not only in the streets, but that we are hemorrhaging from every orifice with nary a tourniquet in sight. That hasn't happened yet."

*** What are we doing in L.A.?

We drove up from San Diego on Sunday and are now visiting daughter Maria, who is trying to break into the motion pictures.

"Dad, it's not easy. When I first got here, it seemed like this would be so easy. Everyone was so nice and friendly. And I don't mean they aren't still nice and friendly, but the town is tougher than it looks. There must be thousands of girls just like me...working as waitresses and legal secretaries...but hoping to get into acting. I've probably had better training than most of them, but that doesn't seem to matter. I got a good agent. At least, I thought she was good. And when I get to go for a tryout I work hard to do a good job. But it doesn't seem to be working. Honestly, I don't know how people do it."

Maria seems to be doing all the right things. She is serious. She is determined. But the acting business is a hard way to earn a living. In the meantime, she has asked dad for a subsidy.

Which might raise a question; if a subsidy for GM and Wall Street is a bad idea...why is a subsidy for Maria a good idea? Glad you asked.

The way we see it, giving money to Maria is both an investment and a consumer item. We give her money because that is why we bothered to earn it in the first place - so we could help the family when they need help. It is almost a consumer item in that respect - since it gives us pleasure to be able to help her. And there are certain careers that require more investment than others. We have a son who wants to go to medical school. He is just finishing his first year of college, so we can anticipate huge investments over the next 7 years. Why not invest in Maria's career as an actress too? Maybe it will pay off; maybe it won't.

There's nothing wrong with investing in Detroit either. If anyone believes investing in Detroit is a good idea - let him go forth and good luck to him. Who knows? Maybe an investment in Detroit is a good one. Each man takes his chances and his losses.

There may also be people who want to give money to Detroit for other reasons - national pride or nostalgia, for example. If they want to do so with their own money, well again, bully for them. We wish them well.

But a government bailout is a different thing. The feds take money from people who DON'T want to invest in GM...or Citi...or AIG (if they had wanted to invest, the companies wouldn't need the government's money) and give it to the companies. By definition, unwilling investors are getting something they neither want nor deserve. And the more bailouts and stimuli the government enacts, the more they take people where they don't really want to go.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.