Why BAC Will Beat: Understanding a New Bull Market Is Not Underway

Though I’m writing this article on the Saturday preceding the Monday Bank of America (BAC) earnings announcement, I am quite confident in stating that the chances Bank of America will not surprise and beat analysts on Monday is slim to none. I can state this without reading a single word about what the analysts are predicting in terms of earnings and without scrutinizing any pre-earnings hints from Bank of America executives. I can state this for the same reason that I knew Wells Fargo (WFC) would surprise the market to the upside, why Goldman Sachs (GS) would surprise the market to the upside and why I wrote just last Friday on this very blog that Citigroup (C) would surprise to the upside before it announced its earnings.

I can say this because I know that free markets and capitalism have been dead concepts for a long time now in the United States. Though we, as Americans, would like to cling to the delusion that we are a capitalistic nation that honors free market principles, capitalism has long been dead. That’s how I know beyond a shadow of doubt that Bank of America’s earnings will beat analysts’ expectations come Monday morning.

You see, the honor of the American financial system has been in shambles for decades and has devolved to the point that it now consistently mirrors the high levels of corruption we, as Americans, typically associate with emerging markets. The very regulatory agencies that we, as investors, trust to protect us, such as the Commodities Futures Trading Commission [CFTC] and the Securities Exchange Commission [SEC], do not regulate but instead protect fraudulent activities.

During the bull markets of the early 1990s, if you ever tried to convince any American with a $1 million+ portfolio of investing in emerging markets, the likely response would have been something similar to the following: “Russia, China, and Turkey? Are you kidding? Those countries are so corrupt you never know what you’re buying. Thanks, but no thanks. I’ll think I’ll keep my money in markets I know I can trust.” And that was that, end of discussion.

However, today, our markets have become so corrupt that they now resemble the capital markets of emerging countries where the lack of a strong regulatory environment enables very few financial oligarchs to strong-arm the system and heavily bias it in their favor to the detriment of the rest of their countrymen. What do I mean by this? Let’s take a trip down memory lane and review the major events that have led to bear-market rallies in U.S. markets in the past 18 months, and consider if there has been one not tinged with corruption and principles that stand in opposition to free markets?

There was the U.S. Federal Reserve-led bailout of Bear Stearns by JP Morgan (JPM), an act that led even former Federal Reserve chairman Paul Volcker to criticize in response: “The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices.”

When the failure of many U.S. banking institutions to employ any type of risk-management principles subsequently created very illiquid operational capacities that threatened their ability to survive, the SEC stepped in in an unprecedented move to change laws and temporarily ban short selling of approximately 800 U.S. financial stocks. When AIG was about to collapse and default on billions of CDS (Credit Default Swaps) instruments that they held, our very own U.S. Secretary of Treasury Hank Paulson swiftly intervened and personally ensured that AIG would receive billions of dollars of handout money.

And of course, we have not even mentioned the trillions of other bailout money allocated to Citigroup, Fannie Mae, Freddie Mac, and numerous other financial behemoths nor the everyday workings of the President’s Working Group on Financial Markets to intervene and prevent free markets from taking their natural course. In every one of the above instances, which are just a few of the numerous actions that top financial executives and government executives have executed that have interfered with free-market behavior, who directly benefited from these actions? The American people or a few corrupt wealthy oligarchs?

When all of these “solutions” inevitably failed because none of them actually accomplished anything other than re-directing money out of the pockets of all Americans and into the pockets of a few corrupt men, the financial institutions resorted to more chicanery such as changing their definition of bad debt from 120 days to 180 days (a tactic employed by Wells Fargo) or merely ensuring that they could value their assets at whatever price they deemed reasonable even if markets found their valuations to be ludicrous (a tactic accomplished once the financial companies were able to convince FASB to suspend mark-to-market accounting regulations).

Thus, on Monday, we can expect Bank of America to declare earnings that beat analysts’ estimates, because most analysts, just like the regulators, are also part of this big con game. Many times analysts are “prepped” by financial companies' Public Relations employees that purposely feed them massively negative information that they know is inaccurate. Analysts then take this information like willing children and prepare reports based upon this misinformation. Consequently, when the time then comes for earnings announcements, markets have been prepped by analysts to expect negative results that were never accurate, and financial companies are able to release earnings that “surprise” the markets.

Outside of the con games that continually are played by financial institutions, here are four more reasons why this rally will end very shortly.

(1) Financial stocks have led this recent rally, but there is nothing fundamentally strong about any of the financial companies whose share prices have led the broad markets higher recently;

(2) If we look at the charts of individual financial stocks, volume has been weak on these rallies. Many financial stocks have probably rallied more on short-covering than anything else, and thus the rallies will not be sustainable;

(3) If we look at a chart of a broader U.S. market index above, such as the S&P 500, you will notice that the rally has occurred on decreasing volume and that a doji-star candle formation, often a sign of an imminent reversal, just formed Friday. Though the MACD is still clearly positive, the MACD is a lagging indicator; and

(4) Markets in the short-term often behave irrationally but long-term fundamentals drive markets in the long-term. This current rally has been fully irrational and has no legs. Look at the macroeconomic state today - record unemployment rates, a financial system still in utter disrepair, a commercial real estate market that is about to burst and so on. Nothing in the macroeconomic outlook points to this rally continuing nor being sustainable.

It would indeed be ironic if Bank of America’s earnings underperform analysts’ expectations since I’m so confident they will exceed them. However, even if I’m wrong about this, you won’t find me in any traditional stocks in any global market come this May for there are far better and less risky ways to create wealth from this ongoing monetary crisis. For the above four reasons, one would be best to heed the old investor cliché of Sell in May, Go Away.

Comments

[Justice Kinky:]

You make some good points. The major problem with your reasoning is contained in this statement:

"However, today, our markets have become so corrupt that they now resemble the capital markets of emerging countries where the lack of a strong regulatory environment enables very few financial oligarchs to strong-arm the system and heavily bias it in their favor to the detriment of the rest of their countrymen."

Today? Become so corrupt? Are you suggesting that the markets were once "honorable"?

Our markets have always been corrupt. This nation was founded on glorious greed, boundless carpetbaggery, corrupt cartels and an oligarchy of rich men whose "countrymen" were other rich men.

And we prospered.

The "regulatory environment" that you believe existed prior to this modern-day corruption is and always was a favored American mythology and the declaration of how the United States has deviated from its equally mythological "honorable" past is the national pastime. Each new generation of investors bemoans this present era of corruption, but we were always corrupt.

The ongoing fantasy that regulatory environments can and do exist is a promotional gambit, propoganda, if you will, put about by concerned parties who make a show of putting such fallacious "regulations" in place to secure the confidence of investors and induce them to...well...invest.

"Regulators" are political frontmen whose sole purpose is to assume a moral-seeming stance in order to convince the gullible majority that someone is protecting the public from the very oligarchs that the politicians exist to serve.

To fiercely defend the notion that actual regulation existed in the past and that it no longer exists in the present is to be naive.

There were no actual regulatory environments in the past. Not one.

Welcome to the circus.

Apr 19 06:35 AM

[uktank:]

yes, the chart shows a divergence and most likely a correction could be coming soon. support seemed to be at the 80 level from the chart.

Apr 19 06:39 AM

[Lostshirt:]

It would be great to concentrate your article on what are those lfar better and less risky ways to create wealth

Apr 19 07:22 AM

[J. S. Kim:]

Justice Kinky,

Point taken. There really have never been "free" markets and you are right. But I merely mean to point out that due to the dismantling of the Glass Steagall Act in 1999 thanks to the efforts of Alan Greenspan, then Citigroup CEO Sandy Weill, and Wall Street, the corruption has multiplied in leaps and bounds since then. So I do believe it is much worse today than twenty year ago.

Apr 19 08:51 AM

[J. S. Kim:]

Lost shirt,

I have written a lot about what assets I believe will benefit from this crisis on my blog at www.theundergroundinve... so you may want to check that out. Cheers. I've been writing that blog since 2006.

Apr 19 08:54 AM

[Repsonsible...:]

Yes Our system is corrupt and getting more worst, the longer they keep proping up this phony market the worst the fall we'll be but it gives tthe crooks at the top a chance to collect the last of there ill gotten gains , in Huge Salaries and Bonuses . Our system is Bankrupt next year You'll start to see 15% to 20% inflation this will actaully help spur demand as people rush to buy what they want before prices go up if you were a adult the 1970s You know what Im talking about . When ever You went shopping for most any major item as a last resort the sales man would always say well better buy now next month the price will be higher and You knew he was right ! I built a Beautiful new home for $43K with lot in 1972 Sold in 1977 in $89K I Bought a New Car in 1973 for around $3,200 I sold it in 1978 for $5,000 , think about that I had the car for 5 years , put about 55K miles on it and got $1,800 more then I paid. So inflation has its up side ,, course the new car I bought in 1978 cost over $9,000
it was basically the same car i had in bought in 1973 for $3,200 . PROBLEM is my income only went up about 40% in those 5 years. While prices went up almost 300 % I was certainly poorer by the end of the 70s . It was a strange time I was one of the lucky one s I worked through it all many lost jobs, but most those jobs were there to go back too and we recovered , unlike today were the majority of the jobs lost are GONE Forever and theres the BIG Problem HOW can You tell me about a Recovery when there will be almost NO jobs to go back too. Yes I know they'll be Green jobs , a new study says only 10% of those jobs will still be there 3 years later there mostly temporary . And only about a Million of those Green jobs will be created in the next 5 years . We need 150K new jobs a month just to absorb New Young people coming into the job market. So with losing 600K jobs a month now and 150K new ones we need to make were running a REAL 750K Jobs shortage a month , I'll do the math for You thats 8.5 Million Jobs a Year Deficit.Its going to get Pretty ugly By end of the year ! The Only way we could save ourselves in to go Back to the 1950s era model , when we Made everything We Needed HERE we imported less then 5% of what we needed verus 70% today . We exported more then 10% . Today with Our technology stolen we compete with workers making 50 cents or a $1 a hour , a Engineer in India gets $700 a month and with the internet he can offer his skills anywhere they have internet. We produce almost NOTHING HERE Of Real Value here . We have a economy based on 70%CONSUMPTION , How do you PAY for that ??? 25% is based on Services , Lawyers , doctors , accountants , Computer people , CLEANING people and Resturant Help NOT much REAL Proucts being produced there is there ??.
Only 5 % of Our economy is devoted to making anythng , cars , washing machines, toliets, building homes, Building equpiment , like Catapiller . Its been getting worst every year litle by little Id say we've reached the Tipping point .
My advice , Buy Gold If You can , Buy some guns even if you dont have much money to spare . Move away from the Cities get a place in a small town less then 10,000 if possible You can make friends there and it will be far Less dangerous when things really get bad , I hope we can keep this country we call America , but Im Afraid in just a couple years what comes About will BE NOTHING LIke the America We've Known
Good Luck , God save us all .

Apr 19 09:00 AM

[nmau:]

Seems like a lot of chatter from desperate shorts or those that have missed the rally and are kicking themselves.

Apr 19 09:20 AM

[drbob66:]

I don't get it...have the analysts been duped into thinking that the banks are in poor shape (hence their low earnings estimates)? Or, as you claim, are they part of a "con game, " purposely keeping estimates low...even though they secretly believe the banks are stronger than their estimates suggest. I look at BAC, for example, on yahoo finance...and the high and low estimates for this quarter are $0.20 and ($0.22), respectively...with an average of $0.04. Sounds like there's downright disagreement (or even confusion) in analysts' estimates to me. Which ones are right...and which ones are part of the "conspiracy"? Hard to tell from the logic of your argument. But seeing as BAC reported a profit of $0.23 in Q12008, it looks like none of them expect BAC's yoy results to be better...again, have they been "fooled," or is it a "con game"? OR could it simply be that there's genuine disagreement (perhaps because bank earnings are so difficult to predict in this environment )?

To your other points:
"(1) Financial stocks have led this recent rally, but there is nothing fundamentally strong about any of the financial companies whose share prices have led the broad markets higher recently."

The financial stocks are not at all-time highs...in fact, the XLF is down 71% from its all-time high. It could be easily argued that the "fundamental weakness" of financial companies is still priced in at this point.

"(2) If we look at the charts of individual financial stocks, volume has been weak on these rallies. Many financial stocks have probably rallied more on short-covering than anything else, and thus the rallies will not be sustainable;"

Well, the volume of BAC on April 9 (when it first broke towards $10) was over a billion shares..the highest ever. Was it due to short-covering? No doubt SOME of it was. The question is...does it matter? The price was going UP...and it's continued to go up. And only price pays...not anger, resentment or conspiracy theories. Regardless, even the volume on Friday was 487 million shares...and up until Jan, the average volume was around 100 million. Is 487 million shares "weak volume"? I guess it depends on your definition of "weak."

Similarly, WFC traded over 376 million shares when it gave its earnings "preview"...its highest ever. Is that "weak" volume?
Up until March, JPM stock was trading around 50-70 million shares/day...since March (its low point), the average had been well over 100 million. Is that DECLINING volume? I don't think so. Did you even look at the charts before you wrote this article? Or did you read somewhere on the internet that "volume was weak"?

"(3) If we look at a chart of a broader U.S. market index above, such as the S&P 500, you will notice that the rally has occurred on decreasing volume and that a doji-star candle formation, often a sign of an imminent reversal, just formed Friday. Though the MACD is still clearly positive, the MACD is a lagging indicator;"

The volume on the S&P 500 just this past week was 29 billion...in April 2003 (when the S&P500 was at the same price level...and in the early stages of what turned out to be an impressive bull run), the average volume was less than 10 billion. Which is higher? 29 billion or 10 billion?
In addition, a "doji star" is a sign of indecision...a sign of POTENTIAL reversal...just as a resistance level (for example, 840 on the S&P500) is a sign of potential resistance...until it becomes support (as it is now). If, as you say, it's "often a sign of reversal," I would ask, "How often?" More often than not? Do you have any statistics to suggest that it would indicate that a reversal is imminent?
MACD is a lagging indicator? Well, I'm not sure of that..but, in any event, it's "clearly positive," as you point out, so what does this mean? Nothing, really...it's just a term you threw in to attempt to bolster your argument, without any real significance.

"(4) Markets in the short-term often behave irrationally but long-term fundamentals drive markets in the long-term."

The market was going up all through 2006 (and halfway through 2007)...were the long-term fundamentals good then? Obviously not...but prices went up anyway, and anyone still in the market was making money. Similarly, the fundamental macroeconomic picture was awful in early March 2009...yet the market has recovered substantially. Perhaps you were out of the market then...if so, you missed a chance to make money.

Finally, your article hardly mentions price...even though price is ALL THAT MATTERS. To suggest that one should "sell in May and go away" while prices are still going up (making higher highs and higher lows) makes little sense. I would suggest that it would be better to wait for price action to confirm a reversal...because if it doesn't, you'll miss out on further profits. With reasonable stop losses in place, one can easily protect any profits made thus far...or prevent further losses. Shorting this market makes no sense at all in view of the price action...although I'm sure there are some stocks that are "overvalued" at this point, but until they make "lower highs and lower lows" (or simply break an uptrend line), shorting them seems a high risk proposition.

In the end, the ultimate conclusion that the author makes is that the "better and less risky way" to "create wealth" is to SUBSCRIBE TO HIS NEWSLETTER. Well, my only question is...were you recommending to buy BAC when it was at $3 (now $10.60)...and after the Fed, Treasury and the current administration made it clear that BAC wouldn't be "nationalized"? Did you recommend BAC stock in Jan and Feb...when insiders were purchasing hand over fist (at prices ranging from $3.50 to $7)? Or how about WFC? I bought on Mar 5 at $8.53 (now trading at $20.26)...the same day that the CEO bought 100,000 shares (at $8.05). Were you recommending WFC in early March? Or were you convinced that Dick Kovacevich was trying to "trick" people into buying his stock by investing $800,000 of his own money? Is that the kind of "advice" that you provide (for a fee) in your "Crisis investment opportunities" newsletter?

Or were you simply telling people to "buy gold"? Frankly, I've owned some gold for a while now...and my WFC shares made me more in a month than my gold has in almost a year. In fact, the GLD chart looks like it's about to roll over. Regardless, the arguments made in this article are weak, and the real result of this all-too-common attitude that "this rally isn't real" is simply missed opportunities (or, perhaps I should say, missed "crisis investment opportunities").

Oh well, at least you can maybe make some money from the advertising on your website.

Apr 19 09:49 AM

[global value:]

I agree. All market recoveries following bear market bottoms are decried as false until it is too late.


On Apr 19 09:20 AM nmau wrote:

> Seems like a lot of chatter from desperate shorts or those that have
> missed the rally and are kicking themselves.

Apr 19 09:50 AM

[J. S. Kim:]

Just looked it up. Average estimate among a polled group of analysts according to Dow Jones news wire is for BAC to declare $0.03 profit per share on Monday. So this is typically the figure the media will reference as to whether or not BAC "beats" earnings estimates.

Apr 19 10:27 AM

[pokernut:]

nmau writes:
>>Seems like a lot of chatter from desperate shorts or those that have missed the rally and are kicking themselves.

I sold all my stocks at DOW 13800 in 2007, then kicked myself into 2-year CDs at 4.30% toward the end of last year. I get 98 for BA, 42+ for T and 45+ for VZ. I am still beating the S&P by more than 40% since I sold. Why should I worry about missing this rally?

BTW, where did you do your selling, little man?

Apr 19 10:35 AM

[The Geoffster:]

Having spent the last six months pouring over every available financial news I could get my hands on, I am convinced that Treasury and the Fed are simply engaged in a coordinated confidence game to spur consumer spending by any means possible. Maybe it will work, but just in case, I've been buying hard assets and shorting treasury bonds to hedge my portfolio of "investment grade" corporate bonds and stocks.

Apr 19 10:51 AM

[abbyz1:]

i have a lot more confidence in warren buffett's opinions that yours and he still owns a big piece of wells fargo. if you are so confident about your views why don't you short wells and the entire financial sector? there are certainly always things to complain about with our system but its still the best one out there. the capitalist system is doing what it always does, adjusting to new realities, and then moving forward. i think its incredibly foolish to bet against its 100 year+ history of success in reaction to a two year downturn, however severe it might be. the market will eventually come back with a vengence, and mr. buffett's $45 billion net worth, built over 50 year of investing experience, attests to this fact.

Apr 19 10:59 AM

[Milkweed:]

So you are saying THIS quarters earnings are a lie? I wish they would have started lying about earnings a year ago and saved us all a lot of grief.

Apr 19 11:10 AM

[InvestBaboo:]

There is a fundamental problem with your key premise that everyone is in collusion here for the benefit of each other.

If such were the case then there should never have been a financial stock meltdown of the kind we saw in 2008. So when the market is going up (like it has been the past few weeks) everyone is colluding together and when the market is going down it is because the whole system is corrupt and investors have caught on to this?

I do agree with you though that we allowed the system to become corrupt through lax regulation. The pendulum is now swinging to the other extreme and we may end up over regulating. A balance will be found in the future. While the United States may not possess the perfect system it is by far the best system that exists in the world today. For a while it may appear that we have compromised free enterprise but the American spirit is strong and we will allow free enterprise to flourish but under the right conditions.

Apr 19 11:42 AM

[metastar:]

While I agree that the markets and regulating agencies have always been corrupt, NEVER in my lifetime have I ever witnessed the amazing and unbelievable theft which is taking place. I sometimes worry about a thief entering my house in the night and stealing all my possessions. Yet, if the thief took everything from my home, they would not have stolen anywhere near the wealth the government is taking from me with their bailout actions.

The media draws our attention to pirates, but they purposefully avoid the real story which has been put into play by both democrats and republicans. We are being robbed and we must keep the focus where it belongs.

Good article. I couldn’t agree more.

Apr 19 12:10 PM

[ain't no fo...:]

Its great how all these "short busters" have made such supposedly "huge" profits the last 6 weeks.

They don't mention how their buy and hold strategy cut their portfolios in half (or more) the preceding 18 months, and this bounce back from 60% lower levels has added precious little to cut those huge percentage losses.

But keep beating your chests kids, its to the moon alice and all is right with the economy!

Good article Mr. Kim, I'm still not in the gold or lead bullets camp (yet), but I'm sure not trusting the guvmint or the money center banks to be looking out for my best interests here.

Apr 19 12:32 PM

[mals:]

Nice article and nice counter punch from informed commenters. For what it's worth, I bought C, BAC and WFC thinking it can only go up and they did. Ultimately you should be guided by your own analysis and also intuition. Good luck everyone.

Apr 19 12:44 PM

[doctks:]

Buy SWHC and RGR to protect yourself form this incredible "conspiracy". OMG get over yourself. There will certainly be a correction but the world is not coming to an end. There are still plenty of businesses growing and taking advantage of this downturn and they will be the ones that come out of this calamity in much better shape. Some of those will be irrefutable leaders 5 years from now.

Apr 19 01:03 PM

[NormK:]

The SKF is looking mighty attractive right now if you believe the premise of this article. Personally I know I can't predict the recovery of financials any better than anyone else but I have a hunch I can do better in the short term buying SKF at this level than buying XLF and hoping for a significant recovery of the 50% I'm down on it since last summer.

Apr 19 02:01 PM

[E Nuff Sed:]

We will be in a secular bear market until the major indexes clear the previous high. But there is money to be made going long over the next 3 - 6 months.
I think BAC will exceed expectations - now that mark to market is gone and given the steep yield curve it will be making money hand over fist for the next couple of years. The government has rigged the system so that the banks will essence finance their own bail out. However I am not crazy enough to fight this rigged system by being short. The facts have changed - so change your point of view.

Apr 19 03:16 PM

[Zachary Sch...:]

It looks like another "buy the rumor, sell the news" scenario to me. I wouldn't be surprised to see BAC (and the rest of the financial sector in turn) decline sharply over the next few weeks. We may in fact be at a turning point economically, but there will be disappointments along the way.

Thanks for the interesting perspective,
Zach
zachstocks.com

FD: I am long BAC

Apr 19 04:00 PM

[Albertarocks:]

This is nothing short of a fantastically courageous and honest (and accurate) report. Most of us who've studied markets for 30 years or more knew this, but to see it written so clearly is very refreshing.

Hell, I remember in 2002 when JPM came out with the most horrendous report immaginable (at that time), I'd shorted it the day before the report, and after the report JPM stock shot to the moon. That's when I learned the hard way. Now I'm a lot better off (and wealthier) for having learned that lesson.

Damn their oily hides!

Excellent article

Apr 19 05:13 PM

[Davinci:]

I was just about to send the articles to a few friends when I read the comments and realized. The statements in this blog is like telling people they are in the Matrix. Truth is they are living in a dream world and they have been tricked all their lives, I believed the dream for so long it was hard for me to let go.

Today I see from the comments people are still dreaming as no one said to buy gold. I mean the one person who did buy it thinks it's an investment. No, it's not gold IS money in this musical chairs game of catch the paper money potato the last one not sitting in a gold and silver chair gets burned by the hot potato.

Me I've tried the gambling thing it's not for me I just want to produce a real good and save gold and silver. Some one has to do it or you gamblers could not eat.

Mean while you can hold your dollars and dollar debt, while
"The Federal Reserve stands ready to create money with out limit if the need should arrive." Alen Greenspan

Apr 19 05:50 PM

[fatcat:]

You have to play this like a cat and mouse game...I know everything is a lie...I'm just trying to figure out where the lie will fall and when.

All the debate about who,when,how,and why does not mean a thing...it's going to happen...just figure out how to profit from it.

I wish I could change it,but I cannot...

Apr 19 05:52 PM

[DonaldRay:]

True, True, True, they even now have received the market of the beast 666 on the 3 month of the 6th day.

But remember the Trend is your friend and that trend is up for now.

Apr 19 06:40 PM

[classixm:]

Good for you !


On Apr 19 05:13 PM Albertarocks wrote:

> This is nothing short of a fantastically courageous and honest (and
> accurate) report. Most of us who've studied markets for 30 years
> or more knew this, but to see it written so clearly is very refreshing.
>
>
> Hell, I remember in 2002 when JPM came out with the most horrendous
> report immaginable (at that time), I'd shorted it the day before
> the report, and after the report JPM stock shot to the moon. That's
> when I learned the hard way. Now I'm a lot better off (and wealthier)
> for having learned that lesson.
>
> Damn their oily hides!
>
> Excellent article

Apr 19 06:41 PM

[User 279624:]

Excellent comment, what I don't understand is if someone came through my front door most people would open up a can of whoopass but everyday they let the govts. pick their pockets. Call it reduistruibution, or call it theft if you worked for it it is yours. Now Barry wants to eliminate the tax dedution for charitable contributions, because he knows how our money should be spent better than us? Maybe we can get a job at ACORN!


On Apr 19 12:10 PM metastar wrote:

> While I agree that the markets and regulating agencies have always
> been corrupt, NEVER in my lifetime have I ever witnessed the amazing
> and unbelievable theft which is taking place. I sometimes worry about
> a thief entering my house in the night and stealing all my possessions.
> Yet, if the thief took everything from my home, they would not have
> stolen anywhere near the wealth the government is taking from me
> with their bailout actions.
>
> The media draws our attention to pirates, but they purposefully avoid
> the real story which has been put into play by both democrats and
> republicans. We are being robbed and we must keep the focus where
> it belongs.
>
> Good article. I couldn’t agree more.

Apr 19 08:32 PM

[Dragon Master:]

I read Mr. Kim writing with great respect. Also "Responsible Citizen"'s writing also reveal the problems bottom up.

We have many ANALysists and Feds still speak from their A$$ for quick recovery.

US is a nation making much less real wealth than before. We are living on shuffling the paper and printing paper money.

Apr 19 08:41 PM

[yomamma:]

This is way too cynical. The shorts had there day in the sun but the economy has turned. America will succeed again because we have to. Just like Pearl Harbor, the giant has awaked. If you think Americans are going to let dirt get kicked in there face for too long, you really don't know us. God bless America!

Apr 19 10:00 PM

[J. S. Kim:]

Part of the reason I write these articles is because fundamentally I believe we have a fraudulent monetary system. Part of the reason I write these articles is also to expose the massive fraud in the financial markets in the US. As a former insider at wealth management divisions at some of the largest US financial institutions I've seen this fraud happen repeatedly. The CEOs of financial companies that experience bad press regularly distribute to high level employees guidance on how to deflect and answer the accusations of fraud from clients. There are subtle techniques known as "block and bridge" that are used by investment professionals to give the appearance to clients that they answered their questions about fraud when they never did. It is a BIG GAME, so when I write that analysts are part of this game, no I am not speaking of a conspiracy. I am talking about understanding the game so you don't get hurt.

Any journalist knows that a strong atmosphere of "self-censorship" exists in journalism. Analysts are not immune from "self-censorship" either. This is the very reason that analysts assign "hold" ratings to stocks when they mean "sell" or maintain "buy" ratings on stocks when they know they should rate them a "sell". If they offend the executives of a large company with "hold" and "sell" ratings, what do you think will happen to their access the next time they call these same executives to ask them questions for their next report?

It is my hope that by writing these articles, people will wake up to reality that is all.

Apr 19 10:30 PM

[lawboyd:]

Mr. Kim, I say this with no animosity to you whatsoever as I have never met you. But, in fairness I went to your various sites just to get a 'sense' of you and what you are ultimately selling.

Absolutely no problem with a guy trying to make a living, and if you can get people to give you thousands of bucks a year for your investment 'insight', 'perspective', 'picks', 'bs' - anyone will do and point to the same thing - more power to you.

The actual writing on the sites is horrendous. You really shouldn't have an "In conclusion" beginning to 2 consecutive paragraphs and the cliches and standard 'buzzwords' are infinite and somewhat puke inducing after just one reading.

Again, nothing personal and maybe that 'bad infomercial' style of writing works in this arena. But, and I'm only speaking for myself (who else could I speak for), good writing at least gets my attention; horrendous writing loses me forever.

Apr 19 10:52 PM

[Jesse Veverka:]

Excellent article. I look forward to seeing this prediction affirmed.

Apr 19 11:20 PM

[Long US stockS:]

yes


On Apr 19 09:20 AM nmau wrote:

> Seems like a lot of chatter from desperate shorts or those that have
> missed the rally and are kicking themselves.

Apr 19 11:44 PM

[Long US stockS:]

No, your Not speaking for yourself. I had same problem with writting & B.words.


On Apr 19 10:52 PM lawboyd wrote:

> Mr. Kim, I say this with no animosity to you whatsoever as I have
> never met you. But, in fairness I went to your various sites just
> to get a 'sense' of you and what you are ultimately selling.
>
> Absolutely no problem with a guy trying to make a living, and if
> you can get people to give you thousands of bucks a year for your
> investment 'insight', 'perspective', 'picks', 'bs' - anyone will
> do and point to the same thing - more power to you.
>
> The actual writing on the sites is horrendous. You really shouldn't
> have an "In conclusion" beginning to 2 consecutive paragraphs and
> the cliches and standard 'buzzwords' are infinite and somewhat puke
> inducing after just one reading.
>
> Again, nothing personal and maybe that 'bad infomercial' style of
> writing works in this arena. But, and I'm only speaking for myself
> (who else could I speak for), good writing at least gets my attention;
> horrendous writing loses me forever.

Apr 20 12:07 AM

[EttU:]

Early into the Bush Administration I started saying that we as a nation were becoming more and more like a third world country. And now I am sure we have become one. It will take quite along time for the USA to rebuild all that is broken in our system, from our financial system to our health system, to say nothing of a political system which has one side of it saying NO to everything and regurgitating the same old and worn out cliches of the past.

Apr 20 01:48 AM

[Justice Kinky:]

J.S.

I was not only pointing out that "free" markets are a delusion, but that both the "regulations" and the "regulators" are suspect. Carter Glass and Henry Bascom Steagall were both political frontmen, serving "oligarchical" interests. (Of course if you don't think the Fed is an oligarch, remember it's all a matter of perspective!)

Alan Greenspan, another political mouthpiece, was "convenient" in the process of dismantling GSA once FDIC consolidated enough regulatory power to achieve full robber baron potential. Treasury and the Fed already have too much power. They are now able make the banks do what they want them to do without any semblance of due process. Nationalization? How redundant.

We're supposedly safer now because of the noble FDIC. If banks falter, up rides FDIC to the rescue with "FDIC deposit insurance is backed by the full faith and credit of the United States government". A high-sounding claim, but what does it mean? There are no laws that actually obligate the government to make good on any insurance liabilities the FDIC incurs.

Senate Banking Committee Chairman Dodd recently introduced legislation that would give the FDIC temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund at the request of other regulators, notably FDIC chief Sheila Bair, Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner. All three asked Dodd to support an emergency expansion of the FDIC's capacity to borrow from the Treasury. So much for the FDIC's ability to stand on its own two feet.

This, after years of being told that FDIC insurance is NOT funded by tax payers. Supposedly banks and thrifts must pay premiums for FDIC insurance coverage, and the premiums collected by the agency are invested in Treasury Department securities. The combination of mandatory premium payments and profits earned on the securities investments goes into the FDIC insurance fund.

In a worst case scenario where will the FDIC find the money to insure depositors? What if they manage to get the requisite funds from the US Treasury? Where does the US Treasury get it? Higher taxes. The number one carrier of risk is still the schmuck on the street, just like in the "old" days, despite all the grandstanding and "regulation". Smoke and mirrors. Nothing more. Nothing less.

Also, I'm personally of the opinion that allowing banks to diversify (meaning: engage in rampant speculative carpetbaggery, just like everyone else) allows the banking industry the ability to reduce risk, so the restrictions of the GSA could actually have made the banking industry riskier rather than safer.

Pre - GSA, post - GSA, there really is no difference. At every turn of the regulatory or deregulatory screw the oligarchs win. If we're clever, we get to ride with them in the limousine. If we're not clever, we get to use public transportation.

It's a dog eat dog world. It always was. The "old" way passeth giving way to the "new". And always, fortunes are made. That's the beauty of this great nation. The next wave of giants is waiting for a turn in the spotlight. Absolute cynicism is the key.

Remember, in these days, as of old, it's not what your country can do to you but what you can do to your country.


On Apr 19 08:51 AM J. S. Kim wrote:

> Justice Kinky,
>
> Point taken. There really have never been "free" markets and you
> are right. But I merely mean to point out that due to the dismantling
> of the Glass Steagall Act in 1999 thanks to the efforts of Alan Greenspan,
> then Citigroup CEO Sandy Weill, and Wall Street, the corruption has
> multiplied in leaps and bounds since then. So I do believe it is
> much worse today than twenty year ago.

Apr 20 07:36 AM

[Jesse Veverka:]

From Monday morning's news:

"CHARLOTTE, N.C. – Bank of America Corp. managed to avoid a loss in the first quarter, surpassing analysts' expectations and providing further evidence the banking sector might be improving."

JS was right on.

Apr 20 08:39 AM

[mrmillergd:]

Very thought-provoking. The level of obfuscation that banks can now engage in so over-the-top that I don't know why people continue to hold bank stocks.

Apr 20 10:21 AM

[Warm_Paw:]

Good Article.

Has the financial system ever been anything but corrupt?

When I invest, I'm successful on sentiment.
Or the spin being created.
Buy any company on a sound balance sheet and the stock price does nothing. It's a bastion in the downturn and an anchor in an upswing.
Daytrading on the latest headline has been the only lucrative way to invest while the overall economy destroys real investors.
Add to this the macro economic fact American manufacturing disappeared around the time Ross Perot wanted to save the southern states textile industry and the question is, who is going to purchase US made goods when you can purchase the same product from China from labor that costs $2 a day?

We've been living on credit for a decade.
How real estate has went through the roof price wise is strictly demand. Wages could never sustain the increase.

What's occurring right now is that unionized employment that paid good money and bought big ticket items is collapsing.
No one has savings or credit left.

People who make $2 a day don't buy $40,000 SUV's.

Protectionism is how this issue was dealt with in the past.

Globalization makes us more efficient, so instead of protectionsim, we may need to resort to a four day work week and share the work to give more people employment.
To compel trading partners to pay their workers better wages, improve living and safety standards and give third world countries the ability to pay for and import our goods.
It will also increase the standard of living for all.

If we're to rely on technology, education should be less expensive for all. Incentive should be offered to find green solutions to energy issues. Instead of throwing tax payer money at banks which should clearly fail - putting it towards the future is more cost effective.

After a great forest fire, that's when green shoots emerg.

Apr 20 11:50 AM

[History Buf...:]

abbyz1,

Buffett was able to negotiate much more favorable terms on his stock purchases than you or I could (preferred instead of common, guaranteed dividends, etc.). So don't make the mistake of thinking that the price you pay for WFC is going to have any relation whatsoever to the deal that Buffett got.


On Apr 19 10:59 AM abbyz1 wrote:

> i have a lot more confidence in warren buffett's opinions that yours
> and he still owns a big piece of wells fargo. if you are so confident
> about your views why don't you short wells and the entire financial
> sector? there are certainly always things to complain about with
> our system but its still the best one out there. the capitalist system
> is doing what it always does, adjusting to new realities, and then
> moving forward. i think its incredibly foolish to bet against its
> 100 year+ history of success in reaction to a two year downturn,
> however severe it might be. the market will eventually come back
> with a vengence, and mr. buffett's $45 billion net worth, built over
> 50 year of investing experience, attests to this fact.

Apr 20 01:42 PM

[History Buf...:]

J.S.,

An interesting article. Obviously, some people will agree and some will not.

The posters who comment that the system has always been corrupt are correct, up to a point. If you read about the history of mid 19th century America you will find a lot of things were done which would today be considered completely wrong. When Andrew Jackson was President, for example, he did things to advance the business interests of himself and his friends. It was simply taken for granted back then that when you achieved positions of great power that certain perks came with those positions.

Because it costs so much money to run for elective office in the U.S. today (I just read an article that said it costs an average of $9 million dollars to run a successful U.S. Senate campaign) we are in a situation where moneyed interests are essentially bribing our elected representatives in order to influence the government to give them some kind of helping hand.

Was it always this way? To some extent, yes. But the trend has accelerated recently. For now, a couple of timeless aphorisms:

The Golden Rule: Them that has the gold, makes the rules (anonymous)

"We have the best government money can buy" Mark Twain

Apr 20 02:09 PM

[linger71:]

Good article. Though it was too obvious BoA would post a better than expected earning, but pointing out that this rally would end very shortly is impressive.
Although many have been aware of this rally having no legs, it would've been a shame not to profit from it, hit and run, people, hit and run!

Apr 20 02:41 PM

[Dsne2121:]

For an administration emphasizing an increase in transparancy and accountibility there is very little for the average investor to stand on. The option of conversion of government loans to common equity is just another step towards bank nationalization. Whats to keep this from extending to healthcare and other sectors. The rules are being changed faster than they can be written..... great way to improve investor confidence. If they're not gonna nationalize, the talking heads should shut up. Everytime someone opens his or her mouth and mentions anything remotely connected to nationalization we sell off. You would think that by now our leaders would see how fickle and news driven this market is and keep their mouths shut. Releasing news like this only makes the average investor more uncomfortable, hence the 260 point drop today.

Apr 20 03:40 PM

[Earning REady:]

Mr. Kim,
Excellent call on a bear rally ending and BAC and why.
Somewhere between the rumor16 out of 19 banks will fail the stress test I started a sell in April as May is too far away!

In the meantime I look forward to reading your personal opinions!

Apr 20 09:08 PM

[Earning REady:]

Mr. Kim,
Excellent call on a bear rally ending and BAC and why.
Somewhere between the rumor16 out of 19 banks will fail the stress test I started a sell in April as May is too far away!

In the meantime I look forward to reading your personal opinions!

Apr 20 09:08 PM

[jekardo:]

I think people need to stop Blogassinating (blog+assassinating "Arispe") the stock market. The fact of the matter is that Bank of America and Citibank will not go out of business. The government is too highly invested in them. Since that is the truth, then anyone with five free dollars should be buying these banks. The math is simple. At some point between now and 2020 these banks will be back up over there highs, and down again, and up again. The point is to buy now while they are so cheap and sell them when they have made enough money for you to feel like you made a killing. All of this blogassinating is just slowing the process, and frankly designed to keep the winners in this market to a minimum. Since I don't like people who talk a bunch of stuff then don't follow there own advice, I will tell you what i did. I scraped together every penny I could spare, and got myself Bank of America stocks when they were under $6.00 a share. If I sold last week I would have almost doubled my money. If I wait till it gets to 30 before I sell, I will quintuple my money. What if I wait till it gets to 50. Is anyone going to tell me that it will never hit 50 again before the decade is up? I am telling you now, I will pay of my house with the little money that I put in my BAC stocks one day soon. So stop Blogassinating and get in while there is still time.

Apr 21 02:53 PM

[Stone Fox C...:]

A month later and the bull market is still alive. It might be ready to roll over now and maybe not, but you seem way to sure of yourself. If the market is so rigged as you think, then why don't you think it'd now be rigged to go up? Wall St needs a good market to recover.

May 26 01:24 AM

[Earning REady:]

A month later BAC is trading at the same price ... can't say the same for gold.
Rigged? Check out the Commodities Futures Trading Commission if you are looking.

May 31 11:53 PM

[Freya:]

Gold is an Investment. It is money and it is Insurance.

It should be a part of everyone's portfolio, a part of Not all of.

People are saving more, gold is not part of that. Savings Accounts do not have Gold in them.

All of today's retirees have lived through a Gold Bubble but they bought when interest rates were rising rapidly. Don't expect them to jump on this bandwagon until interest rates start rising again.

Apr 20 12:25 AM

[Freya:]

Just checked MSN's analysts survey, 19 analyst average is $.05.

Range is from Minus $0.22 to Plus $0.20.

I'll go with +$0.25 just to make sure it'll be a total surprise. No analyst has a clue on how to make an evaluation with MER in the mix. BAC paid the Government $400+ million in dividends in February and just announced a Payment of $700+ million.

Additionally, MER threw in the "baby" with its $15 Billion in losses prior to its acquistion, how much will be reversed is also in moot.

Apr 19 02:08 PM