It’s still asset prices. The more recent 2007 AAA vintage of subprime-backed securities — the real top of the market garbage — had a price pop yesterday in sympathy with bank stocks.
ABX Index for 2007-2 Vintage AAA’s Backed by Subprime Mortgages (from Markit) (click to enlarge)
This illustrates my point in the post earlier regarding bank top lines and bottom lines. The rally in financial stocks is associated with more optimistic assumptions about home prices, consumer defaults, and so forth. But the misery in the household sector doesn’t justify a sustained rally. 30 cents on the dollar rather than 24 cents on the dollar makes sense, but not 50 cents on the dollar for these securities. The loss rates for subprime (and many other) pools as unemployment remains high will be punitive. Bank top-line revenue will improve, then vanish.