Financial stocks are getting whacked for good reason. When will it turn around for the big financials.

Bill Bonner writes that all data is pointing towards a recession.

The dollar is sick, US deficits continue and they’re huge, consumers are pulling back on their spending, the housing picture is a disaster, the war in Iraq is God-awful expensive, the banks are wobbly and inflation is heating up. So why hasn’t the market already crashed?

After five rate cuts and one massive tax rebate program, the feds are wondering what to do now. A bailout is probably coming. But will it work?

Are the Fed’s efforts really futile, we ask? Are they worse than nothing? Well, the answer depends on who you are. If you have been holding euros, instead of dollars, you might want to send the Fed a ‘thank you’ note.

We are only half way through the mortgage-reset storm. Expect more bad weather.

House buyers thought housing prices would go up forever. So did the people who lent them money. Of course, fantasies were behind the whole boom. Americans lived beyond their means and thought they could do so indefinitely.

Are we now, at long last, faced with a long, slow slump a la Japan? There’s a whole ocean of difference between an island nation with huge savings, a thrifty population and an enormously positive trade balance, and a stretched-out empire, possibly in decline, running record deficits in its external trade and internal government finances, with an aging, over-paid, over-indebted workforce.

An oil shock on top of a crunch on credit and a housing collapse. As anticipated, consumers are doing the only thing they can do; they’re spending less money. What happens to a consumer society when consumers stop consuming? Ah, dear reader, you know the answer to that, too – it shrinks.

The Dow rose 114 points yesterday. The feds are trying to keep the party going, of course, by refilling the punch bowl as fast as they can. The U.S. money supply is increasing about five times faster than the economy itself.