Monday, May 04, 2009

Wait, you mean the banks are struggling to meet the fake stress test?

Another night, another leak. Tonight the news is that 10 of the 19 banks facing the "stress tests" will be forced to raise more capital. Shocking (please note the sarcasm in my tone).

What is really shocking is that banks are failing a poorly designed test that was built for them to pass. However, here's my real issue - about 2 months ago Citibank and Wells Fargo kick started this current rally by saying that they were profitable and things looked great. Well, the problem that I noted at the time is that they were talking about their operations, not mentioning losses on existing assets. This is kind of like saying your kid is at the top of their class, but forgetting to mention that he's only passing gym.

Citibank, Wells Fargo and the rest of the banksters knew they were going to need to raise more capital back in March. Since that time these stocks have been world class home runs. Citi has gone from $1 to $3. It doesn't sound like much but that's about a 1200% annual return. Let's say Citi was told to raise $10 billion with a $1 stock. That means 10 billion new shares and they'd be approaching Hackett's territory :). Now if they need to raise $10 billion they'll "only" have to issue 3 billion shares. Wow, it's a good thing someone leaked that news about how good business was to boost Citigroup's stock.......oh, wait wasn't it Citigroup that leaked the news?

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The markets soared on no real news again. This was very strange action and some have said their is evidence of market manipulation going on (the way the market gaps open and then pins is very suspicious, but until I see some hard evidence I won't buy it).

Also, as I've noted before almost 40% of the most moves in the market in the last 2 days occurred in the final 5 minutes of each day because of the use of ETF's. This is not natural and not an indicator of real strength. The markets again broke through technical barriers and are looking for another push up to 925-950 on the S&P 500. While it's fun to talk about the "rally of 2009" it's important to note that after this historic 8 week rise, we are ALL THE WAY BACK TO WHERE WE STARTED 2009.

Cheers!

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