During the 13 weeks ended last Friday, blue chips stocks had gained 38 percent, marking one of the sharpest rises in history. Small cap stocks, as measured by the unweighted average of all stocks on the New York Stock Exchange, fared even better, gaining a whopping 84 percent in that same period with nary a pause. But for all the bullish stock market talk, the major averages have been unable to muster much in the way of a rally since the results of the banks stress test were released in early May.

The problem is plenty of other things are rising as well, including bond yields and commodity prices. These latter two could scuttle a recovery. For instance, the 10-year Treasury that so many consumer loans key off of shot up more than a full percentage point during the past few weeks. And 30-year mortgage rates have risen to 5.5 percent. Although that’s still low by historical standards, we’ll see less refinancing and few new home purchases as a result.

Our banking sector is walking on egg shells as is. The number of problem banks has risen to more than 300. And even though $75 billion in capital has been raised many of the so-called “healthy” banks are on the edge. Yet the Federal Deposit Insurance Corporation (FDIC) is essentially out of money, with only $13 billion in remaining reserves (although its line of credit was recently upped to $500 billion).Read more...