Asterisks Abound

Monday, July 21, 2008 | 07:23 AM

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


Monday, July 21, 2008 | 07:23 AM | Permalink | Comments (15) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Daily NYSE new lows on July 15th -- around 1,100 -- were among the highest ever. This is surely good for a bounce, just as were the elevated numbers of new lows in Aug. 2007 and Jan. 2008. But it doesn't necessarily mean that the bear market is over.

Consider the 784 new lows set on 9/21/01. That was the Friday of the first week of trading after 9/11. Stocks fell all five days. Typically for this indicator, the highest number of new lows was set on the exact day of the index low. The next Monday, 9/24, the SPX blasted back above 1000 in a rally which lasted till end-year. But after March 2002, the market retraced the entire rally, and broke below the Sep. 2001 lows in July 2002.

Something similar could occur this time round. Most likely times for another downside move would be in Sep-Oct. of this year, or early 2009 (in the weak first year of the presidential cycle).

The BKX is leading the way up, and perhaps will give us a clue when the rally fizzles out.

Posted by: Jim Haygood | Jul 21, 2008 7:44:00 AM

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