Meredith Whitney came on strong Monday in an interview with Maria Bartiromo, saying the market was overvalued and she had no idea why it was rising. I quote (roughly) "I am the most bearish I have been in a year." Ms. Whitney, in the past, has been a banking analyst with keen insight into housing, the cause of bank troubles. And banks led the market down, so the call is a natural since her view of housing and the banks is based on math, not hope, and it is probable the banks will lead the market down again.

She was immediately attacked by the man who never met a stock he did not like at some time or another - Jim Cramer - the world's worst stock picker. His attack not only lends credence to her views, it proves this is a trader's market that can only escape fundamentals for so long.

Too bad blood banks are not publicly held, they, on and off, would be great shorts. Friday, an article in the Wall Street Journal highlighted the ongoing difficulties a critical supplier, the American Red Cross, was having keeping the FDA happy. A couple of days ago the same publication published a piece on how swine flu was inhibiting people from donating or eliminating them from the population of potential donors. You would think in the twenty first century technology could solve the problem of donor contaminated blood.

It can -- and it is in Europe - not in the United States, just yet. The technology is found in the INTERCEPT system invented and marketed by Cerus (CERS). Simply put, INTERCEPT systems clean blood for eventual use as blood platelets, eliminating virtually all known pathogens - including HIV and swine flu. INTERCEPT systems make the collection (and tracking) of blood platelets nearly donor independent. Each collection of donor blood requires a disposable product used by the INTERCEPT system, so the company has a razor and blade business model with sales and margins expanding in an almost geometric pattern once a system is installed at a blood facility.

Valuation alone is never a reason to short a stock - not even when it is 487 times current earnings. Slowing growth can be a reason for shorting a stock - a momentum stock that goes from a 100% to a 20% growth rate in less than two years. A secondary offering that sells no company shares but insider and private investors shares - is that a warning sign? Or how about a company touting international sales - that equal one million dollars (that is million with an M, not billion with a B)?

The company in question is Open Table (OPEN), a terrific service, a slowing company, a completely ridiculous stock.

The double dip has begun.

Statistically, we will see a rise in GDP in Q3 and in Q4. This is anticipated and meaningless data, but the numbers will hit headlines.

Ding dong, the witch is dead... a familiar reprise to many of us of a certain age. The first witch to go was the wicked witch of the East - John Thain of Merrill Lynch. Now the wicked witch of the west - Ken Lewis - is gone. West? Bank of America (BAC) was built in California, I needed to make this work somehow.

And Lewis leaving means it is time, once the charts are on your side, to short BOA.
Lewis, the second best cry baby among the bank CEOs (John Stumpf of Wells Fargo (WFC) is in a class by himself), is leaving not because he wants to re-grow his beard or get out of the spotlight. He is leaving because the bank faces years, not quarters, of trouble ahead:

Yesterday's existing home sales numbers - down

... and the new home sales number today - up less than one point

I have not written for a long time - roughly a month - as the market has turned me into a hermit. I am afraid of the people in my industry, recommending or buying stocks based on what the person next to them just bought. My service, ChangeWave Shorts, only recommends puts so short term momentum can kill a fundamentally sound position. That being said, I sense the beginnings of a turn to rationality - a light turn, a hesitant turn, but a turn - and the first place the market should and will get rational is the banks. They led us into the mess, they led us out, and they will lead us to stagnation and decline as reality sets in.

And the bank I really don't understand - excuse me, the bank stock I don't understand - is Wells Fargo (WFC), an $8-$10 stock masquerading as a $28 plus stock and trading at a multiple well beyond the rest of the banking segment. It isn't that Wells should be valued alongside the segment; it should be valued lower than the segment due to current and future problems in its business, led by its balance sheet.

I found the unemployment numbers to be quite bad, and not because I write a newsletter on shorting stocks (well, I also recommend some longs based on a contrarian view of the Street's conventional wisdom.) When these data are released, regardless of the months, I look at three data points: net employment gains or losses, long term unemployment and gains in income. This month something else became important - the labor force participation rate. What all investors and traders should be looking at is the net impact of any of these reports on national income and the ability of the consumer to spend. And these are still shrinking big time.

Net Employment Gains: We are still losing jobs, and even if the Street wants to trade the second derivative, the decline in the rate of decline, a quarter of a million jobs lost is five football stadiums fewer people working and spending less money than last month. Impact on the economy is quite negative.

I never believed in green shoots - they were always brown at best - and now they are turning black and will stay black through 2010. As I write this Larry Kudlow is screaming, telling viewers and suckers to essentially ignore very disappointing retail sales data and invest based on consumer confidence. Well, pal, consumer confidence is still negative - just not as negative as it was - we all know that - but it is headed south again. C'mon, Zucker, do you really want ratings that badly? Remember what you want badly, you get badly.

Where was I? Oh, black shoots. My newsletter, ChangeWave Shorts, is published by Investor Place Media and we have an in house brand - ChangeWave - and in house survey group that has been doing sentiment surveys on everything from consumer purchases to oil exploration budgets for eight years plus. And they survey the same people, enabling them to create and use great baseline data. And they are never wrong - truly - my interpretation of their results may be wrong, but the data is always spot on and typically weeks if not months ahead of other data gatherers.

I have been writing about brown shoots for too long to recount - perhaps since the term green shoots was created by some bull with calls on the S+P - and I have been astounded by the number of analysts, pundits and whatever who bought the argument. Congress is expected to re-write the laws of math but no one else. So why were so many people surprised on Thursday with the unemployment data?

This Thursday's unemployment report should not have been a surprise. I will not waste your time recounting numbers you can see or have seen elsewhere. But the sharp selloff means a) a lot of traders got in on the wrong side of the trade and ran in a hurry and b) there is still a historically high amount of cognitive dissonance on Wall Street. Cognitive dissonance may, in fact, explain the entire rally and is, if you like behavioral psychology, is central to understanding the behavior of markets that fly in the face of economic reality.

Barack Obama is proving to be a masterful president just six months into office. I am not talking about policy or legislative initiatives - the first role of any president is to lead and he has led the nation from a sense of panic - perhaps panic itself - to calm - real calm. He has been wildly successful, regardless of what the "paid to scream" pundits in the conservative and financial media may say about him.

And now that calm is here, and his policies and proposals are more rather than less important than his ability to reassure the American people about their own strengths, it may be time to, metaphorically and literally, short Obama. Specifically his health plan, whatever shape it may take. At least some of the profits can be used to pay the extra taxes we are going to pay for the next 25-50 years. (For purposes of full disclosure, I voted for Obama.)

Green shoots has become a tiring term - clichés in the age of new media really run of out of gas quickly, and I recently took a two week working vacation to dig out green shoots for my readers. Data is nice, but you can get that anywhere and it basically starts arguments. So I told myself to take a hard look on the ground? What did I find? Brown shoots everywhere.

...Are anecdotes worth investing in? Just as Peter Lynch, you can start with these anecdotes but first you must ask yourself why is Wall Street so adamant about green shoots and the "bottom." Simple. Wall Street is congenitally biased to the upside, we were coming off a very sharp decline in the markets and Obama has a great ability to lead, convincing us and then remind us the world is not ending.

Market conditions make shorting the home builders and their cousins - suppliers, Home Depot (HD) et al - very difficult in the short run. In the long run, housing in the US will be permanently different, the ongoing profitability of these companies is in question and several of these outfits are going under. For sure and for certain.

Housing is a wreck and compared to market expectations, getting worse. Why does this matter so much?

As technicians, fundamentalists (and I am not talking about religious types) and almost anyone else will tell you, the market is trading by its own internal logic that is pretty hard to elucidate. Let me try.

First, Wall Street sees a bottom at yearend and an upturn in Q4 GDP. The seriously foolish see this as a real bottom and a real upturn in GDP; the savvier fools see this as a statistical bottom they can trade and have done so for the past two months. This latter group is not really made of fools - they have just cost my subscribers a lot of money and I am mad at them.

Elizabeth Kubler Ross' classic work, On Death and Dying, is a misused and misquoted book - it is about a topic far more serious than making money - but she has provided a great framework to evaluate and accept the realpolitik that destroyed many short positions in the banks. These positions were killed by stress tests that were somewhere between worthless and fraudulent - at least to people who passed fourth grade math - although very useful to the psyche of the market and the American public. So good job Mr. Obama - Roosevelt did the same thing when he closed and then re-opened the banks in 1933. Of course, the system then went on to see many thousands of banks fail and it took a world war to pull the country out of a credit starved depression.

Denial: As it first began to dawn on the Street that the stress tests were going to be meaningless puff, I kept telling myself this could not happen, Obama and Bernanke are too smart to hand the country a zombie banking system. I overlooked the political reality - the realpolitik of the situation - Congress was not going to be forthcoming with more money should the stress tests be truly rigorous or objective when there was no money to re-capitalize them. How could they given the reckless behavior of the banks and their craven behavior since the fall of Lehman. I was in denial of the realpolitik of the situation.

My hero - Yogi Berra - said it best. "It ain't over 'til it's over."

The market disagrees with him - at least right now. There is a collective sigh of relief that the stress tests will be more cartoon than non-fiction and the banks will not be nationalized, de facto or otherwise. And that is drawing in not only traders but some investors.

Everyone is looking at speculative opportunities stemming from the possibility of a pandemic flu outbreak. The obvious longs - vaccine and treatment companies - and the obvious shorts - travel and some agricultural commodities - made their moves Monday. Is there anything left to short or even go long?

It all depends on the severity and duration of this outbreak. Mexico is a third world country with a marginal -- and I am being kind - public health infrastructure and a capital with incredibly poor air quality, a probable factor in the death rate of people with the flu and living in Mexico City. And to better understand how this could progress, or end, let's look at what is going on.

Monday was not a technical correction - we saw the first major move down in financials due to the coming transparency squeeze. This squeeze is being driven by five factors - bank earnings' announcements, new mark to market accounting rules, the coming stress tests, future toxic asset auctions and the recent raise of new capital by Goldman Sachs (GS).

Earnings: The market not only does not like the fake earnings from Citi (C), BOA (BAC) and Goldman - accounting plus one-offs equal profits at these companies - but is really upset about the small reserves being set aside going forward. Simply put, these banks are not making any effort to be more transparent and by doing so investors are assuming the worst. The market voted - it thinks there is a large amount of bad stuff on their balance sheets - no kidding - in part due to a blog post that may or may not be real. The poster said they had seen the stress test results and 16 of the 19 banks were insolvent and there was an unspeakable amount of derivatives and other potential losses facing the banks, losses that would put the FDIC underwater in no time.

Wells Fargo (WFC) -- what a press release, eh?

The company blew some serious smoke last Thursday to brag about earnings and indirectly tout its stock. "Brag" and "tout" are strong words - and purposely chosen. The focus on "three billion in profits" and "fifty five cents per share" and some of the adjectives in the press release sent the stock soaring this morning. I tend to focus on some other things -the balance sheet among them - and I zeroed in on "provision expense of approximately $4.6 billion, including $1.3 billion credit reserve build, bringing the allowance for credit losses to $23 billion." Twenty three billion, wow, what a big reserve! Not really.