Tuesday, July 28, 2009


The plethora of earnings reports and pseudo-information out the past few weeks has been hard to digest, all with the net effect of a large market rise. Earnings have managed to not trip on estimates lowered to the ground, as 76% of S&P reporters to date have beaten their projections. Ridiculously low projections (you didn't think analysts would err on the top-side this soon did you?) combined with huge savings coming in the form of layoffs are behind these beats, not sudden increases in sales to strapped consumers. As unemployment rises and inventories are replenished, do we not realize this is a one-trick pony? You can only cut so much of your workforce before you cease to function as a company.

But this logic doesn't seem to play as there was general excitement over MOM gains in home prices of 0.5%, the first such gain in over 2 years. Ok, but home prices are down 32% YOY; the fact that they are not accelerating at previous pace is because that pace cannot be maintained. Don't tell Wall St. though.

To no one's surprise, temporary short-selling bans have become a permanent fixture. However, disclosure of short positions by hedge funds was not extended. We've been awfully hard on these guys, haven't we? 2008 was rough for them, let's let them get back to leveraging their clients into oblivion.

To my surprise however, there has been some action on GS' and other large firms use of super fast computers to gauge market direction before anyone else has a chance to buy or sell. NY Senator Schumer has pushed the SEC to action, threatening legislation if they fail to force the availability of pricing simultaneously for all market participants. This didn't sit well with one of the CEOs of these platforms. "William O'Brien, chief executive of Direct Edge, made no apologies for the practice that fueled his market's rise and said that dark order types 'democratize access to dark liquidity.'" What?

Oh, and there's $165 billion in CRE loans coming due this year, much of which is already delinquent. Both Benji and Janet Yellen have said this week that this remains one of the largest threats to the banking system. Watch out for bailout #2, or does that not come until this one officially fails somewhere around Q1 of next year? Don't forget to watch Bernanke explain to locals on PBS why we gave AIG $185 billion but let local businesses fail en masse!




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