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GE's Beautiful Day

A beautiful day for our parent company. General Electric up nearly 14 percent, its best one-day gain since at least 1962.

What's up? GE is finally catching up with the recent rally in the financial stocks (GE trades as a financial stocks, exactly in line with the Bank Index), which are rallying on stimulus/TARP hopes.

Bulls, bears, and the stimulus package.

Stocks have been holding up because bulls are hopeful that the stimulus/TARP/TALF plans will help speed a bottom in the U.S. economy. That's why most traders remain in favor of some kind of stimulus, though they differ on the mix of tax cuts vs. spending.

Bears, however, are generally more united. They believe that bulls are delusional for several reasons:

1) The stimulus is back-end loaded, so there will be little if any direct effect on the economy until the second half of the year;

2) The stimulus announced is either misdirected and will therefore not create a bottom, or

3) "It Ain't Enough." The size of the stimulus is not great enough to make a difference. A good example, bears argue, can be found in infrastructure: the Senate is allocating $27 billion.

While this sounds substantial, analysts at Avondale Partners point out that it will essentially provide only "a stop gap for state budgetary shortfalls."

How much of a stopgap? State transportation budgets are likely to be cut 30 to 50 percent in fiscal 2010, so it's likely that the stimulus funding "will help with basic maintenance and the continuation of projects already under construction," but little else.

4) Once it is clear that the stimulus is misdirected/inadequate, second half earnings will come down, and stocks will revisit their November lows.

What's up with commodities? Is there a reflation trade forming?

While the modest move up in techs has been well-broadcast, there's been less notice of the modest commodity rally in the last few days:

Aluminum: 1-month high

Copper 2.5- month high

Baltic Dry Index: 4-month high

China stocks: 4-month high

Brazil stocks: 4-month highs

In addition, there are modest breakouts in commodity stocks like Mosaic and Potash , while others like Freeport-McMoran , Nucor , BHP Billiton , and Rio Tinto are on the verge of breakouts.

In addition, Tony Crescenzi and others have noted the continuing strength in Treasury Inflation-Protected Securities (TIPS), inflation-indexed bonds issued by the U.S. Treasury.

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