April 8th, 2009
09:42 AM GMT
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LONDON, England - Alcoa, the largest U.S. aluminum producer, has kicked off the first quarter earnings season with a loss of nearly $500 million.

Markets haven't taken the news well. Alcoa is a nasty reminder that the sting of the recession continues to bite. There will be plenty of other reminders.

The U.S. earnings decline has now lingered for six straight quarters and it's not over yet. The expectation is that profits for companies in the S&P 500 will decline for three more quarters including the current one, according to Bloomberg data.

Marc Faber, a well-known analyst, predicted this week that the S&P could go back down to 750 - a fall of some 10 percent from its recent high - before rebounding in the summer.

Even though markets are supposed to anticipate recovery, there are still plenty of reasons to be cautious. Nouriel Roubini, who predicted the economic crisis we are now in, remains bearish, and expects the U.S. economy will continue to contract this year.

And Mike Mayo, the banks analyst, is predicting that loan losses at U.S. banks may exceed Great Depression levels.

Mayo, isn't a household name. But anyone who follows Wall Street closely knows his name well. He's the guy who correctly took a bearish stance on banks in 1999, when others remained bullish.

He thinks mortgage-related losses are only about half way to their peak. While credit card and consumer losses are about a third of the way from their worst levels.

George Soros expressed skepticism this week about whether the market rally had legs, pointing to problems in the real economy.

Soros says recently announced changes to fair value accounting rules will keep problem banks in business, and that in turn will only delay any economic recovery.

Confidence of course, plays an important role in any rebound. It was only a matter of time before the reminders of the depth of this downturn hit investors once again.

Alcoa is the first of those fresh reminders - it won't be the last.

Meanwhile, the problems of the banks persist, and as long as that continues, any real recovery will have to wait.

Do you think the recent rally in the market was a bear market trap?

When do you see the economy rebounding?

How much longer do you think it take to work through problems in the banking sector?



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