David White

Wall Street Breakfast: Must-Know News

The SEC made the rule against naked short selling permanent today. It was set to expire on July 31. This should keep the markets from going down quite so quickly when they retrace. This means that brokers have to have (or buy) stock that they are lending for short selling.

We are still in a very volatile time.

Wall Street Breakfast: Must-Know News

Vickers Weekly Insider Report reported Monday that the ratio of insider selling to buying last week was 4.16 to 1 (the highest the ratio has been since Oct. 2007). The more stable 8-week average was 2.69 to 1 (the highest since Nov. 2007).

Of course, insiders are sometimes early, and occaisionally they are wrong. Still this does make one think that the current market rally may be facing strong headwinds in the near future.

If you combine this with the news from BofA that they are now planning the closure of 10% of their branch offices, you get an ugly picture.

Wall Street Breakfast: Must-Know News

The preliminary GDP figure was -6.1% (a shrinkage). This was significantly worse than the -4.6% to -4.9% figure expected. Retail has been doing badly. Big oil has even been doing badly. We have a possible pandemic brewing with the swine flu. I don't see the good news. Yet the market is going up this morning.

Perhaps it is the upgrade of the banking sector to Neutral by Trone. If so, I find this highly questionable logic.

The old saying, "sell in May and go away", may be proving itself true again this morning. We are not in May yet!!!

It may be that people are just delighted that the preliminary GDP number for Q1 was less than the final figure for the previous quarter. They shouldn't be. The figures have tended to get worse on further updates.

It may be that people no longer fear the swine flu. That to is probably a mistake. The WHO raised the pandemic threat level to 4 yesterday. That is "upward", not downward. It is simply too soon to tell how serious this epidemic will become. The first US death was reported today.

If Trone thinks the banks are well enough capitalized, he is not seeing the big picture. Conditions have done nothing but worsen over the last 6 months. Each time the IMF puts out a new world GDP estimate, it is lower. Ditto the Fed with its estimates. There are still a lot of toxic assets. There is still rising unemployment. The credit card industry is quickly becoming highly unprofitable as the charge off rates are increasing quickly. Commercial real estate is supposed to implode this year. Residential Real Estate is still supposed to have serious problems this year. I could go on. The banks cannot wait until they are in imminent danger of going under before they raise capital. They will then not be able to. The Lawmakers think the stress tests are likely not stressful enough (i.e. too close to current conditions). I tend to agree. Apparently Mr. Trone thinks he knows more than the Fed and the Treasury experts. Grabbing at straws is a mistake. Banking stocks will eventually recover. However, they are likely to go through a lot of pain this year. I'd stay away with May on the near horizon. I certainly wouldn't bet the entire market up, just because one analyst sees improvement in the banking sector.. I am sure many others see just the opposite. The one person bucking the current "generally accepted thought" got all of the headlines because his opinion is in such contrast to others.

There is one more day until May. Next week will likely be the end of the major earnings period. What will happen to the market then???