A quick comment prior to running to a meeting:
Last week’s deeply oversold condition allowed Treasury and SEC to orchestrate what BIll King called the mother of all short covering rallies.
That looks to continues this week.
Earnings are coming in weak — however, they are not as bad as the worst case scenarios. As we noted previous to the rally, we covered our shorts and are playing this for bounce. But beyond the bounce, we continue to have concerns.
Asterisks abound in many of these earnings, from Wells Fargo to Wachovia to Bank of America. Why asterisks? Consider how this game is being played:
• Delinquencies and Foreclosures were previously marked on a 120 day basis; the bank extended its charge-off policy to 180 days, eliminating or postponing enormous losses to the future;
• Some paper is being moved to Level 2 or Level 3, again forestalling taking the actual loss;
• Borrowing at a modest rate from the discount window artificially lowers costs;
There’s lots more of these asterisks, and until the crowd figures this out, you should expect the financial rally to run.
If you have any other asterisks worth noting, use comments below . . .
Second Liens Still Lurking at Wells Fargo
Housing Wire, July 16, 2008
I saw this last week and nearly fell out of my chair.
Last week, President Bush scheduled a Press conference for 10:20am — the exact same time Bernake’s Congressional testimony
Coincidence? Apparently not:
It’s the Stupid Economy
Daily Show, July 16, 2008
This is what focusing on Core inflation gets you! Zimbabwe’s $100bn note: “Some Zimbabweans are already calling for higher denominations in a country where the official annual inflation rate has exceeded 2,200,000%. Independent economists believe the real rate is many times higher. Zimbabwe’s meltdown has left at least 80% of the population in poverty, facing…Read More
"The political establishment is embracing a time-honored response to the nation’s economic turmoil. It’s going on a witch hunt.Politicians of all stripes worry that improper trading by short sellers has contributed to turmoil in the stock markets. And "excessive" oil traders have replaced oil-company executives — themselves twice keelhauled by congressional committees this year — as the bogeymen behind the run-up in gas prices. For Washington veterans, the sharpened attacks are the incarnation of a standard political trope, one found especially in election years"
Economic Woes Get a Fix: Witch Hunt
WSJ, July 19, 2008; Page A3