In early March, the financial news began to turn good, Citigroup (C) said it has been profitable for the first two months of the year. There were several M&A deals in which large companies paid above market to buy rivals. Jobs and housing data were bad, but not as bad as the worst forecasts.

All of the positive information sent the markets up 20% or better and some financial stocks gained over 100%.

The news cycle is in the process of turning against the markets and the move will be swift and painful.

Over the last two days, the Administration has admitted that it may need to substantially increase the amount of money it will require to bail out banks. That was confirmed, to some extent, by news that UBS (UBS) is facing billions of dollars in losses and more layoffs. The Swiss bank’s problems are not altogether different from its American peers.

For the first time since the automakers came to Washington looking for money, the government has bluntly stated that bankruptcy is a real option for GM (GM) and Chrysler if  they cannot restructure to the level of cost savings that the Administration expects. While the comments could be a bluff, they could also be a sign that Obama is prepared to risk tens of thousands of jobs instead of taking the unpopular step of writing more large checks to Detroit.

Global macroeconomic news is also turning dark. The Organization for Economic Cooperation and Development told Reuters that “By the end of 2010 the unemployment rate could be approaching double digit figures in all G8 countries with the sole exception of Japan, as well as in the OECD area as a whole.” If that is so, the levels of exports and imports for the large countries will drop faster than expected, consumer spending will contract more rapidly, the cost of unemployment benefits will rise, and real estate will be further undermined by the number of people without jobs. Essentially, the amount of money planned for stimulus packages will not be adequate.

Earnings for the first quarter of the year are expected to be bad. There are signs that the economy was slow enough in the January though March period that the numbers may be “worse” than bad and that corporate forecasts for the balance of the year will be revised downward. Early April will also bring the numbers for unemployment for March. If the economy is still losing over 600,000 jobs a month, whatever stimulus package is in place will almost certainly no be adequate to do anything for GDP growth until well into next year.

The news is going to pound the markets with a vengeance.

Douglas A. McIntyre

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