In case you haven’t been paying attention, the stock markets are in the midst of the “Santa Rally” which, as described recently by the Wall Street Journal, usually begins on Christmas Eve and continues for 5 trading sessions after the new year.

If the markets rally in that time period, it is known as a “Santa Rally.”

We’re seeing that right now.

In fact, the markets have rallied hard off the November 20 lows- with the S&P 500 up 24% in that period.

Trading has been light during the Santa Rally- but I expect that to change this week as everyone gets back to work. In the last two weeks, the markets have not been responding to negative news. Will that change this week?

Volatility has also dropped sharply- thank goodness. 500 point drops every few days aren’t good for anyone’s confidence.

Invest Smart

Now is the time to be afraid. With the markets down nearly …

The consensus belief heading into 2009 is that the first half of the year will be nasty- with rising unemployment, lowered corporate earnings and general struggling all around as the American consumer continues to pull in spending.

But then the sun will come out.

Right around the summer time, the thinking goes, the economy will start to pull out of its funk and the second half of 2009 will be robust (and so will the stock market.)

So everyone is “playing” for the second half recovery.

But markets (and economies) rarely behave as “everyone” believes. If anything- it’s usually the opposite.

Let’s suppose, then, that the economy DOESN’T recover in the second half of the year. What then for investors and the markets?

No Second Half Recovery

What got us into this mess? Housing and the credit bubble.

What will get us out? When housing hits a bottom and the credit bubble is completely burst.

Neither has happened yet.

So …

Ben Bernanke has long been known by a friendly nickname, “Helicopter Ben”, due to a speech he gave in November 2002 before he became Fed Chairman on the Federal Reserve’s response to deflation.

He said, basically, that the U.S. government could print as much money as it wants:

“But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

He became known as “Helicopter Ben” because …

I’ll be posting a new article on Tuesday due to too many crazy holiday merry-making events this weekend.

But a few observations until then:

1. Retail still stinks.

The stores continue to see light traffic. I was in a prominent Target in Chicago on Saturday afternoon which normally would have been a zoo with only 12 days to go until Christmas and it was only mildly crowded.

The toy aisle had people, of course. But I didn’t have to wait long at the check-out (and they had all aisles open.)

Similarly- Lord & Taylor was advertising 25% off everything in the store through Tuesday of this week if you went to their website and printed off the “friends and family” coupon.

2. How can the stock markets be holding up with all this negative news?

No one can time the markets. They sometimes behave irrationally- but you should prepare yourself for further pain in the …