Expecting the 'Better than Expected' from GE, Google and JPMorgan

Wow. Just remember this story as the "better than expected" numbers hit in the quarters to come in banking. JPMorgan (JPM) reports tomorrow AM and I've lifted a lot of short exposure ahead of it; I now fear banks. In fact the whole market rallies on anything, so it's reaching the point where it is ludicrous to short - I'll probably cut back even more tomorrow on the "scheduled rally" off "better than expected" (green shoots) out of JPMorgan and then Google (GOOG). Then Friday after the "better than expected" numbers out of GE (GE) we can race some more. Apparently there is no valuation or PE ratio that will be too high in the green shoot economy.

Since I have such a high cash position, I will just use that as my hedge, since I've lost money day after day, after week after week- the past three weeks attempting to short things. It was fun and games for the first 5-6 days, but now it's starting to seriously hamper performance. So until the tide turns, and bad news actually means stocks go down for more than 4 hours, I'll be cutting back and just touting green shoots on a regular basis even if it means American Express (AXP) at nearly 40x earnings is still way too cheap and I should be buying.

Until then, I want to show you how your tax dollars will help banks continue to do "better than expected". Momma, have your kids grow up to be bankers. We changed the tax code for them, we give them FDIC backed loans, we pushed Fed rates down to zero, we give them TARP money and now bonuses for doing things they should be doing on their own - like modifying mortgages that they see some hope in saving.

• Six large U.S. banks could pocket nearly $10 billion in federal subsidies if they modify troubled home loans and are able to save homeowners from foreclosure, the Treasury Department said on Wednesday.
• The mortgage specialty arms of Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo & Co. (WFC) would each earn over $2 billion for modifications that have long-lasting success, according to the Treasury's formula.
• The money is available through a $50 billion program to encourage mortgage servicers to ease the terms on troubled loans. Many more mortgage servicers will be eligible for the subsidies, the Treasury said.

I remember seeing this when the Obama mortgage modification plan was announced, but did not put two and two together.

I will stand and clap my hands tomorrow as JPMorgan's Dimon "navigates the bank through incredibly difficult waters". Yep... very very difficult.

Comments

[Rick Urban:]

Oh man shorting market at March 9 lows? Now you are waiting for bad news to turn market around and head down. Many of these bad earnings news that are coming out now were priced into the market at March lows. Never try to time the market. You are sitting on cash, missed 25% rally and lost money trying to short the market during the rally. Even if you go long today you will still make money in next 2-3 years. That is called investing, but if you are for a quick buck keep doing what you are doing. Maybe you get lucky one day. This economy will recover and you better believe it. Invest in good companies now. If you don't like banks, then forget them.
I personally use very small part of my portfolio to buy a speculative stock if I see an opportunity. Some bank stocks were good speculative trade in the last couple of months. Set the emotion aside. It doesn't belong in the investing.

Apr 15 10:47 PM

[Asitoughtobe:]

Mark,

Help me out here!

I'm not sure what point your trying to make with your article. It is hard to make money shorting stocks due to the government intervention in our financial system?

Apr 15 10:52 PM

[R. Ennis:]

Hey Trader Mark,

Yep, bear markets generally kill all involved. I'm getting the feeling that it is time to start shorting....especially as some of my favorite bears capitulate. I'll be all in short by Friday.

regards,
r.ennis

Apr 15 10:55 PM

[Private Joker:]

1) valuations have lost meaning because some expect banks Q over Q earnings to grow 100% for the next 3 quarters.
2) balance sheets at the banks are more suspect than ever because of the accounting rule changes.You won't see one sale of a toxic asset to the PIPP unless the feds force the issue. Think Zombie banks.
3) the banks need to raise more capital to either cover their write-downs and/or pay back TARP $. Where does that leave current shareholders? Diluted for one. Looks at what GS did.
4) revenue streams from I banking, M&A, and securitization are non existent.
5) the taxpayer is putting good money after bad in the banking system.
This will all end badly- again. Better to shoot a few in the head and move on with our lives. That's what Volcker would do. The economy is still hurting. China's GDP just came out a little light. +6.1% and in emerging markets you need close to 8-9% to sustain growth and a labor force.

Apr 15 11:04 PM

[ladyfriend2:]

itz about time the market squeezed the shorts back, pounded them down to nothing, left them valueless and nearly worthless. HUZZAH! BRAVO! KARMA!!

Apr 16 12:07 AM

[FedUpAgain:]

I want to sell you my company. So, I decide to play fast and loose with the financial information that I give you. I under estimate my liabilities, which inflates my profitability, and significantly increases the "value" of my company. Later you discover that I have cooked the books, and you sue me. Guess what? You will win in any court of law....

Unless, you are a bank, and the Federal Government has officially allowed you to "cook the books" by choosing whatever way you want to value your "assets" (read "toxic"). Then, the guy buying your company (I. E. - the stock purchaser) has no recourse against the fraudulent misrepresentation of the value of your assets (or lack thereof). Stock buyer/holder loses, banks win.

I believe the big "O" met with all the key bankers and told them to start talking positive. Gave them the OK to "re-evaluate" their toxic assets to their own liking, and totally deceive the American people concerning their actual worth. The only reason this scheme works is because professional investors are driven by the profit motive, and don't really care if the lie is true or not. The only redeeming factor of this is that the pros will eventually turn, when the truth can no longer be hidden, that the banks, industry, workers, investors, etc., are all at serious risk, and our country is financially bankrupt.

You have a business worth $300,000, but now you have hocked it for $3 million, and leave it to your children. In order to bail out the banks, we have sacrificed our children.

Once you start letting crooks (I. E. - Tax Cheaters, etc.) determine what is "right", you can only expect more deception, lies, and cheating.

Apr 16 12:40 AM

[goldenhinde:]

I cannot imagine why some of you whose posts are so negative bother to get out of bed. Man, you guys need a break from the inside of your own brain.

Apr 16 01:42 AM

[User 341149:]

Hey, I am a loan officer. Rates on a 30yr. Fixed Jumbo are in the upper 5%'s with no points. Assuming good credit. The LTV is great. If you want to discuss anything feel free to email me at mjacobs@interactivefin...


On Apr 15 09:50 PM Private Joker wrote:

> You said it all-"Apparently there is no valuation or PE ratio that
> will be too high in the green shoot economy." Forget insolvency
> or nationalization we are looking at 25-35 P/Es for a sector that
> can not fund it's liabilities if it marks them to value.
> The market has not been down 2 days in a row since early march.
> This is beginning to hurt and tomorrow shall be it for me. It will
> be time to close up for a month or 5 and go watch some baseball.
> At least most admit the players there are juiced and the game is
> rigged for offense. Just like the financial stocks. BTW- I tried
> to refi with 40% down on a jumbo. I could not do better than 6 1/4%
> on a 30 yr fixed. 1/4 worse than the loan I got 2.5 years ago.
> So WFC , BAC, and JPM are only doing conforming loans at 4.875 and
> flipping them to fannie and freddie and collecting 3/8s on the free
> money that we gave them. Nice work if you can get it.

Apr 16 01:58 AM

[Willy Walnuts:]

Have you ever had a hangover so bad that you pop a few aspirin and start drinking again first thing in the morning to kill the pain and block out the memories of the night before?

Apr 16 02:33 AM

[History Buf...:]

Rick Urban:

I applaud your optimism. But our country now seems to be in a mode where all the powerful parties are playing kick the can down the street and trying to make the problems disappear, not permanently, but for a few weeks or months. That does not augur well for the long term prospects of either our economy or our country.

BTW, if our current government policies and the state of our economy require the sale of many more treasuries I hope someone is considering that the Chinese may not be interested in subsidizing us much longer. If I were the Chinese now I would be dumping treasuries just fast enough to avoid pushing the price down but fast enough to not be left holding the bag. I don't know what the Chinese stance is on precious medals but from everything I can see they are trying to get their hands on every other commodity they need while the getting is good.

Apr 16 10:13 AM

[DonFurio:]

More whining from the losers, which is why you'll always be losers...

Keep the short busting rolling. I don't know what I like better, busting institutional shorts or retail shorts...

Apr 16 10:13 AM

[History Buf...:]

Oops, meant to say "precious metals" instead of "precious medals". I guess that was a hangover moment from the Olympics.

Apr 16 10:15 AM

[optionsgirl:]

The Chinese are big buyers of gold.


On Apr 16 10:13 AM History Buff 24/7 wrote:

> Rick Urban:
>
> I applaud your optimism. But our country now seems to be in a mode
> where all the powerful parties are playing kick the can down the
> street and trying to make the problems disappear, not permanently,
> but for a few weeks or months. That does not augur well for the
> long term prospects of either our economy or our country.
>
> BTW, if our current government policies and the state of our economy
> require the sale of many more treasuries I hope someone is considering
> that the Chinese may not be interested in subsidizing us much longer.
> If I were the Chinese now I would be dumping treasuries just fast
> enough to avoid pushing the price down but fast enough to not be
> left holding the bag. I don't know what the Chinese stance is on
> precious medals but from everything I can see they are trying to
> get their hands on every other commodity they need while the getting
> is good.

Apr 16 11:48 AM

[TraderMark:]

I was just pointing out the next layer of tax dollars that will create "earnings beats" in the quarters to come; which we will attribute to "awesome CEOs" :)

Actually you said it quite well in your comment as well!


On Apr 15 10:52 PM Asitoughtobe wrote:

> Mark,
>
> Help me out here!
>
> I'm not sure what point your trying to make with your article. It
> is hard to make money shorting stocks due to the government intervention
> in our financial system?
>
>

Apr 16 04:35 PM

[TraderMark:]

Uh no, did not short at March 9 lows. In fact I was trying to go very deep long, and started a week early and got hand burnt.


On Apr 15 10:47 PM Rick Urban wrote:

> Oh man shorting market at March 9 lows? Now you are waiting for bad
> news to turn market around and head down. Many of these bad earnings
> news that are coming out now were priced into the market at March
> lows. Never try to time the market. You are sitting on cash, missed
> 25% rally and lost money trying to short the market during the rally.
> Even if you go long today you will still make money in next 2-3 years.
> That is called investing, but if you are for a quick buck keep doing
> what you are doing. Maybe you get lucky one day. This economy will
> recover and you better believe it. Invest in good companies now.
> If you don't like banks, then forget them.
> I personally use very small part of my portfolio to buy a speculative
> stock if I see an opportunity. Some bank stocks were good speculative
> trade in the last couple of months. Set the emotion aside. It doesn't
> belong in the investing.

Apr 16 04:36 PM

[TraderMark:]

Pretty soon - I anticipate a nice 7-9% pullback somewhere between S&P 870-900.

Just as 6 weeks ago you could wake up and short anything and win, now vice versa. Huge swing in emotion and sentiment. Once all shorts give up, we'll probably start turning the other way

After that I expect a very range bound market but over a quite large range.

Assuming valuation means something nowadays.


On Apr 15 10:55 PM R. Ennis wrote:

> Hey Trader Mark,
>
> Yep, bear markets generally kill all involved. I'm getting the feeling
> that it is time to start shorting....especially as some of my favorite
> bears capitulate. I'll be all in short by Friday.
>
> regards,
> r.ennis

Apr 16 04:37 PM

[altaman:]

There will be lots of back and forth until the bizzard of Treasury paper, required to keep propping up the big, connected insolvents (those including in the secret meeting with Obama), and fuel runaway government spending in general gets untenable and interest rates start to go up up up. Then the Treasury bubble will finally pop (QE can only work for so long) and it will be down down down baby because there is nothing left in the locker to patch the holes in the sinking boat the is the Obomber-economy.

Apr 16 05:24 PM

[cynewulf:]

Ya'all should climb up a tree, and look at the carnage that has been wrought,and will be wrought again by optimists like Larry Kudlow, in the market of broken dreams. The bears will come back, because the bulls are shit-mongers and hangers-on,shit mongers.

Apr 16 07:16 PM

[jstratt:]

Where have all the investors gone?

Article after article suggesting every ill in the world and the economy. Each one suggests that stocks are horrendously overvalued. Lots of chart talk about a point or two.

It is a great time to invest! I am harvesting my financial holdings after watching them double since early March and retreating to HON at 8 PE and PG at an 11 PE among others.

Many quality stocks are near 50% of their peak. It is a great time to invest. If you keep trying to nickel and dime the market you will end up with just that nickels and dimes. The time to short the market was before 6 months of frozen freefall.

There is nothing wrong with trading and my trading profits in financials have helped immensely. At the same time a little investing in some quality stocks that have the potential to make huge gains may be more than worthwhile.

The end of the world only comes once and your odds arent very good. Make some good investments and watch them grow.

Apr 16 08:14 PM

[CJJ:]

Moron...the rules went back to what they were. Moron...

Where were you calling out the bank earnings back then.

I don't understand how people don't understand the market is just as dysfunctional at bottoms as it is tops. I guess its useless to argure...the world is ending anyway.

On Apr 15 09:40 PM Repsonsible Citizen wrote:

> Well they Sure Outa report Better Numbers , the Rules were changed
> last month so they Will Show much better Numbers but its all Smoke
> and Mirrows thats the Goverments specialty and theyve made it Very
> easy for the Banks to do it do !

Apr 17 01:09 AM