The market is passed the half way mark for 2009, and it's good riddance to the first two quarters. Here's a quick rundown of some of the more interesting metrics for the first six months.

The S&P 500 returned 1.77 percent and increased its market cap by $177.968 billion, according to Birinyi Associates.

What strategy worked best? Birinyi again:

For the first half of 2009 the best strategy was to buy the 50 stocks that did the worst in 2008. This group of fifty returned, on average, 35%. It is interesting to note that the better a stock did in 2008 the worse it has done in 2009. We would also note that only six of the ninety possible strategies have lost money this year.

The current bull market, which began on March 9th, can best be characterized as being lead by those stocks with the worst trailing fundamentals . . .

A cap-and-trade plan to combat climate change gets a bit closer to reality today as the American Clean Energy and Security Act of 2009, a 1,200-page bill requiring the U.S. to cut reduce greenhouse gas emissions by 17% from 2005 levels by 2020 and about 80% by the next century looks set to pass the House. Ahead of a final vote, analysts are weighing in on what it could mean for companies and investors.

Mostly bad things, it turns out.

Paul McWilliams at Next Inning Technology Research says cap-and-trade simply opens the door for corruption:

There are many easy, painless and even economically positive ways we can encourage reduced CO2 emissions and the development of new technologies that will reduce our dependence on foreign oil, which is what is implied by the "security" part of the title. However, this bill will not accomplish these goals. What this bill will accomplish is a mechanism for massive corruption, the strengthening of the power of congressional incumbency, the establishment of a full employment act for lawyers and the debasement of the aggregate U.S. economy. Yes, those are bold words, but I can back them up.

If this bill passes, Congress will have the power to decide who gets to release CO2, how much they will get to release, how much they will have to pay if they want to release more than the congressional dictated allocation and who they must pay. Because nearly everything we do from raising cattle to growing crops to powering our electric grid to manufacturing everything we eat, wear and use emits CO2, the implication is Congress will have absolute control over not just our economy as a whole, but also in naming the winners and losers.

Make no mistake; what our Congress is trying to do is give itself the ultimate and nearly infinite power to selectively un-tax without the annoying encumbrances or inconveniences of due process. Congress knows that if it is successful in this ruse, it will have industry cowering at its feet to beg for just one more bowl of CO2 credits and, with that, all the campaign contributions and perks you would expect to change hands when favors are denominated in tens or, in some cases, hundreds of billions of dollars.

The tone is dire, but it's tough to disagree. By its nature, any carbon credit scheme mean doling out large-scale, arbitrary costs to companies that pollute. There's just no getting around it, and the temptation to play politics with how those credits are allocated will be great. (I'll admit I'm not informed enough on the bill to parse whether safeguards are adequate here).

So who will the winners and losers be if the bill becomes law? The IRRC Institute breaks it down for the S&P 500. Unsurprisingly, big polluters in the utilities, oil and gas, industrials and basic resources sectors fare worst.

A former editor of mine, generally mild-mannered and agreeable, would absolutely seethe about one topic: The baby boomers. To him, they embodied the worst of 60s-era excess, 80s-era greed, and an unmatched smugness. I was more sanguine, and the heat of the conversations ultimately left us both feeling like a couple of curmudgeons yelling at the kids (or in this case, our parents) to get off our lawn.

But it turns out he had a point, though it was one we largely overlooked at the time. The looming worry for younger generations isn't a boomer legacy of self-centered cultural malaise or financial misconduct. It's that there are simply too many of them.

In one of its regular surveys, The Economist says aging populations are starting to stunt growth, and the situation is only going to get worse.

The issue is simple: We're living too long (good for the individual, but not for economic growth) and not having enough children.

In a nutshell (bold is mine):

This is a slow moving but relentless development that in time will have vast economic, social and political consequences. As yet, only a few countries with already old populations are starting to notice the eff…ects. But labour forces are now beginning to shrink and numbers of pensioners are starting to rise. By about 2020 ageing will be plain for all to see. And there is no escape: barring huge natural or man-made disasters, demographic changes are much more certain than other long-term predictions (for example, of climate change). Every one of the 2 billion people who will be over 60 in 2050 has already been born.

The trend is global, but the baby-boom here means the impact on the American economy will be outsized:

Just a quick bit from this WSJ story on Greenlight Capital's David Einhorn. If you'll remember, Einhorn is the poker-playing, short-selling hedge funder who famously called the demise of Lehman Bros. Looks like he got burned along with lots of other shorts in the now-infamous Volkswagen short squeeze late last year. But at least Greenlight gets credit for some dry wit.

From the WSJ:

Hedge-fund manager David Einhorn (left), of New York’s Greenlight Capital, in a recent investor letter listed in a table the internal rate of return of 14 positions he closed in the first quarter. A bearish bet on jewelry retailer Zale generated a return of 92% and another on U.S. Bancorp returned 78%, Greenlight said in the May 1 letter. Then there were investments in companies such as Dr Pepper Snapple Group and Aldar Properties that generated losses of 46% and 91%, respectively, it continued.

But for the by now infamous Volkswagen trade, which dealt a punishing blow to hedge-fund managers around the world last year, Greenlight didn’t list a figure. It simply said, “bad.”

We went with a pass-pass system!

Today's must-read is Jeremy Grantham's quarterly letter (you can download it from his site here). The title sums it up: "The Last Hurrah and Seven Lean Years."

First, the good news. Grantham says we could be in for a big equity rally thanks to massive government stimulus plans designed to keep the global economy on track, with a good chance the S&P could hit 1000-1100 before year's end. It's a bit of rare bullishness from Grantham (don't worry, it gets worse later). From the letter:

If the stock market is many times more sensitive to financial stimulus in the short term than the economy is, then we could easily get a prodigious response to the greatest monetary and fiscal stimulus by far in U.S. history. Second, if you don’t think there is a special, one-off, super colossal dose of moral hazard out there today, you are sadly uninformed. The moral hazard in play today is of a massively larger order than any we have ever seen.

Vanity Fair goes for broke with a 9,000-word story co-written by Bernie Madoff's long-time secretary Eleanor Squillari. According to juicy bits teased by VF, Bernie was sorta sleazy. The lowlights:

On his personality:

The way Madoff handled stress was “by saying something nasty: You look terrible. You’re gaining weight. You’re stupid. I never took anything he said to me personally, because I knew it wasn’t about me, it was about him.”

On his seamy side:

“Bernie was irresistible to women” and “had a roving eye.” Squillari once caught him perusing the escort ads in the back of a magazine, and he frequently visited massage parlors. “Once, I looked in his address book and found, under M, about a dozen phone numbers for his masseuses. ‘If you ever lose your address book and somebody finds it, they’re going to think you’re a pervert,’ I said.”

Elizabeth Warren, chair of the Congressional Oversight Panel overseeing the bailouts and a Harvard Law professor, tells Tech Ticker today that bankers still don't get it. Bottom line: They're taking taxpayer money, and there will be consequences. Her ire is refreshing.

Stocks are rallying, the economy looks like it's (possibly) bottoming, and Ben Bernanke says growth could resume this year. So what's not to like? One word: Credit.

In a lengthy post, ContraryInvestor.com (re-posted in full at Zero Hedge) outlines why a sustained recovery in the credit market remains the province of wishful thinking. Without the Federal Reserve's help, sickly markets for mortgage- and asset-backed securities and even commercial paper might still be threatening to swamp the entire financial system just as they did during the worst of the crisis late last year. Scarily, stocks might simply be ignoring that fact. From the post:

The equity market has certainly caught the attention of the investment community as of late. Time to take a much needed and very important detour in this discussion. Right to the point, let’s review the character of the credit market. Certainly a general sense of optimism has risen as the equity market has levitated as of late. And that sense of optimism engenders the thinking that the economy and general financial market conditions MUST be getting better because rising equities are simply foreshadowing such an outcome. In other words, history has taught us that equities lead and so if equities are rising, the implication is better days lie ahead. But in the current cycle, we all know that credit market issues have been the locus of distress and the exact cause for a dramatic loss of wealth in financial assets really globally. So although it’s certainly fun to watch the equity markets romp higher, it’s the credit markets that deserve a really big piece of our attention. Better days lie ahead as a generic comment when both the equity and credit markets are healing in simultaneous fashion.

This should give bullish investors real pause. We've slowly been creeping back into picking stocks, touting fundamentals, eyeing breakout sectors, and all the rest of the usual analysis that gets done when the threat of systemic market disruption is absent. It isn't, and we should take care not to pretend otherwise.

Today the WSJ looks at the safe(er) spots in the market including money market funds, stable-value funds, short-term bonds where investors are stashing cash in an effort to protect their shrunken nest egg. None of them look great. Then there's this:

The concerns are cropping up at a time when many retirement-plan participants, facing devastating losses in their stock portfolios, want to preserve what is left of their nest egg rather than betting on a market rebound. In March, 90% of the money transferred in a large group of 401(k) plans tracked by consulting firm Hewitt Associates LLC went into stable-value funds.

It's Berkshire-palooza time again, when some 35,000 souls make their way to Omaha for Cherry Cokes, discount jewelry at Borsheim's and Warren Buffett's latest batch of investing wisdom. Here's a few folks who'll be attending (and blogging) plus some of the accompanying Buffett-related news:

Andrew Ross Sorkin is Twittering. (You can send him questions for Buffett).

Megan McArdle is attending.

WSJ says Charlie Munger doesn't get enough credit.

Is the Omaha lovefest overblown?

Buffett facts from Reuters.

The Guardian predicts some themes including the usual (Buffett's succession) and the obvious (Berkshire's derivatives exposure, and its sinking share price). 

More brave souls are willing to call an end to this bear market, a notoriously tough moment to catch given the fear and uncertainty that marks the switch from downturn to rally. But with the Dow up more than 25 percent since those March 9 lows, more people are starting to see a bull market in the works. Here's a rundown of the recent optimism:

Anthony Bolton, president of investments at Fidelity International, via Bloomberg:

Low valuations indicate advances that began in March are the start of a bull market, Bolton said. He favors financials, consumer cyclical, technology, and “value stocks,” such as retailers, automakers and construction-related shares.

“All the things are in place for the bear market to have ended,” Bolton said in an interview with Bloomberg Television in Hong Kong. “When there’s a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I’d like to bet against that.”

And his contrarian take:

“Nearly all the broker research I read says ‘bear-market rally,’ that’s one of the other things that makes me think it’s the beginning of a bull market, not a bear-market rally,” Bolton said. “When everyone is extremely negative, I want to bet against that. If you wait for things to get better, you’ll miss the rally.”

CBS head Sumner Redstone sounds bullish too, who told the Milken Institute conference, "I think we're in the beginning of a bull market. When a bull market begins, nine months later the economy turns around." (via Reuters). More:

"It was always tough, but today we are in the throes of something we have never seen in our history. It's clear in recent times the market is looking for a bottom."

"The news was extremely bad on the GDP and the market went up. In a bull market, the market ignores bad news. Today, we ignored extremely bad news," Redstone said in a Q&A session with CNN's Larry King.

As fears of a swine flu pandemic increase (emphasis on fears) market jitters are rising accordingly due to the uncertain scale and cost of the current outbreak. Citigroup strategist Tobias Levkovich today takes a stab at just what sort of sickness swine flu could inspire in stocks, trade and the global economy.

While we do not want to diminish the human cost of such awful developments, the investment community is more likely to focus on the economic price. Health care stocks could benefit, while economically sensitive ones could suffer. In addition, we have worried about protectionist policies coming to the fore and it is plausible that some “America First” types may push for more aggressive action on the Mexican border and on immigration, with a populist flavor behind it. Again, we do not see that kind of legislative effort as being perceived as welcome by markets. US-Mexico trade is significant and the Mexican economy is already being hurt by a drop in tourism, exports to the US and weaker oil prices. Accordingly, the news cannot be seen as good for stocks in that country. We would refer investors to the research put out by Citi’s Latin American strategist, Geoffrey Dennis, who has been cautious on Mexican names and underweight the market since mid-December.

But:

We do not see the swine flu development as the factor that will derail the rally, but we are aware that many investors have not participated in the move and thus want some sort of pullback, so they do not underperform. In that sense, we would expect some in the investment community to seize on swine flu as a reason to argue for selling into the rally. We continue to think that skepticism is the dominant feeling in the marketplace and any pullback should be taken advantage of by investors who have been surprised to the upside by 1Q09 earnings thus far.

The report outlines a few investing themes:

Possible losers: The pork industry. Industries that deal in travel or "confined spaces" (airlines) or highly public places (hotels, restaurants, retailers, etc.).

Possible winners: Drug makers (Gilead, etc.). Less obvious: home entertainment plays including "video distributors, video game producers and even pay-per-view movie distribution (through cable and satellite television providers).

Banks have until May 4 to appeal the results of the government's "stress tests" designed to determine whether they've hoarded enough capital to continue functioning. Already, the results seem to hint the financial crisis will continue. All of the 19 largest U.S. banks under scrutiny are expected to "pass" but that's not really the point. Some are still expected to be forced to raise new capital no matter their grade. 

Which brings us to Bank of America and Citigroup, two banks reportedly being urged by the government to raise capital. That banks are undercapitalized is no big secret. Unfortunately, new concern for two institutions that have already taken a combined $95 billion in bailout money could increase the chances they'll come back for more. The longer their capital structures are questionable, the less chance the pair will be able to convince investors to come creeping back especially as the perception problems plaguing the sector remain firmly entrenched. Officials say they don't want the market to look unfavorably on banks required to up cash reserves, or to consider them insolvent. But that is unlikely.

Marginal Revolution's Alex Tabarrok takes the long view of our economic history and sees lots of reasons to be encouraged. Ideas and markets save lives.