Sunday, April 12, 2009

Pass/Fail

As the rally rolls on (financials are on a 50% tear), we are presented with "record" profits by Wells and the delay of stress test results by all 19 banks. This seems a bit strange doesn't it, and all too familiar (think last summer and the no-short rally)? There are 2 possible scenarios for the stress tests and why their release is being withheld, and at that, the results may only be generalized.



1. The results are so god-awful that their release would fizzle this rally immediately and make 666 on the S&P look like a dream.

2. The gubmint is reworking these numbers to make them shine, ensure no large banks fail, and add to the burgeoning rally with earnings propped up by sudden FASB changes and coffers filled with government loans.



Hmmm, I would lean towards number two. We can't afford reality when the market is on a roll like this! RealtyTrac said this week that they think banks are sitting on a "shadow" inventory of 600K foreclosures, the release of which would stifle property values and re-fis even further. So those who "trade" enjoy, and with the 5 futures of the uptick rule reincarnation pending, we may see a further rally. But penance and hyperinflation are coming, and we will be well prepared.



Happy holidays to all.

1 comment:

Tiger Coach said...

AX...
A peculiar name for this blog entry. Pass/Fail is the title given to courses at college which are "so easy" that any self-respecting university will not count them as a grade... Should the U.S. government follow suit, it would mean the banks got the free pass here... But would this not fly in the face of "Change We Need"... or "The Change We Can Count on"? I believe the very credibility of the administration is hinging on this situation.

I am curious if the President will "force" banks to lend... using this as leverage over the banks CEOs... Something will have to give... FAZ cannot drop much lower than it has... FAS or XLF are hedges the other way... Forced lending could eventually exacerbate the problem.

I am of the mind that if inflation is truly the goal here... We could see the stock market inflated right along with the rest of of currency... Just as long as Joe Six-Packs 401K statement shows recovery...what else does he care?