The following I use post by Marty Chenard at stocktiming:
According to Zachs Research, full S&P 500 total net income is expected to be 27.5% lower than last year. Total net income is expected to fall 10.8% for all of 2009, after 19.0% fall in 2008. (For some investors, falling less is "an improvement" worth investing in. Hard to figure isn't it ... last year your personal checking account was minus $19,000, and this year it will be minus another $10,800 ... that's a good thing?)
Are banking problems and the economy fixed? Not by a long shot ... bank balance sheets still have a problem with toxic assets that need to get cleared off. There are still upcoming auto loans, credit cards, and commercial real estate losses that need to be recognized.
Other things not fixed? Last week showed buying in life insurance stocks ... at the SAME TIME the government will open TARP to the insurance industry? - A New York Times story, cited officials involved in the government's stress test as saying that they declared: "all 19 banks undergoing the exams will pass them.” At the same time, William Black, a former senior bank regulator and S&L prosecutor said: “The bank stress tests currently underway are “a complete sham … It’s a Potemkin model. Built to fool people.”
More things not fixed ... The government is telling GM to prepare for bankruptcy. The WSJ reported that Morgan Stanley is facing larger-than-expected losses on some leveraged loans. Berkshire Hathaway just got downgraded from AAA by Moody's, and Steve Eisman of FrontPoint Partners says that GE Capital is sitting on a bad-debt time bomb.
BUT ... we have an oversold rally with a lot of short covering. Some investors are feeling that the train is leaving the station, and they are jumping in to get on board. Contrast that with what Morgan Stanley said last week in a private note to investors ... "They warned that the bear market was not over and regarding the current rally, their decision is to sell into strength now."
Things are not fixed yet, and the most that Obama "can see" is a "glimmer of hope". Regardless, the market has been moving up. In fact, the Banking Index finally broke through a 3 week trading range on the Wells Fargo news last week. As one pit trader commented (about Wells Fargo) ... "Up over 30%? Did everyone just forget that they just took 25 billion in bailout money? Do the math ... the 3 billion they just made is only 12% of what they have to pay back. At 3 billion per quarter, it would take them just over 2 years to pay it back." Still, the Banking Index did break out.
Does all this sound confusing? That is because it is ... that is because investors are confused ... that is because even analysts are confused, that is because the market wants higher bond yields but the Fed is trying to drive them down, that is because Wall Street firms are saying that we will have a 4th. quarter turnaround while Morgan Stanley said (in a private note) that they were selling into the rally.
My comment: No matter how profitable each bank report in this earning season. They all still own toxic asset. It is still in their book. We are building bigger mess afterward. People will see what would it be after this bear market rally.
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