Why is Wal-Mart (WMT) trading near 5 year highs? Their same store sales were up a disappointing 0.7% versus consensus expectations of 1.0%, and although they raised earnings guidance, this was based on inventory control, not organic growth. Wal-Mart, highly dependent on imports from China, is vulnerable to margin pressure as inflation soars and the costs of quality control infiltrate manufacturing on the mainland. Although analysts are proclaiming that higher income folks are trading down to save money, Wal-Mart's core customer is being hit hard by job layoffs and higher food and gas prices.

If I were going to trade down to save money, I would go to the more stylish Target (TGT). So why isn't Target, which is trading close to 52 weeks lows, benefiting from this shift? Perhaps because Wal-Mart has more emphasis on non-discretionary items, i.e., groceries, a notoriously low margin sector.

There is definitely a shift from cash to credit cards worldwide, just as there was a shift from renting to home ownership based on the wide availability of mortgages, but is only a matter of time before this comes to a screeching halt.

Visa (V) and MasterCard (MA) get paid a fee which is equal to a percentage of each transaction, and have no credit risk. Mortgage brokers have no direct credit risk either and they get an upfront fee when the transaction closes. If a borrower defaults, mortgage brokers do not lose a penny. The losers are those who bought the securitized mortgages. Mortgage brokers were doing great until borrowers began to default. The rating agencies downgraded the debt, and now, it is virtually impossible to securitize pools of mortgages. There are still plenty of houses for sale, but the number of transactions has plummeted, and the unemployment rate among mortgage brokers has skyrocketed.

Fannie Mae (FNM) and Freddie Mae (FRE) are trading up and I am scratching my head. In his testimony before the Senate Banking Committee yesterday, former Treasury Secretary Lawrence Summers said that we are in "crisis mode" and that he does not believe that the housing market will correct itself without intervention by the goverment.

But don't be confused...the government's intention is to help homeowners at risk of foreclosure, not shareholders of companies who made those loans. Summers said that "government should strongly urge government-sponsored enterprises Fannie Mae and Freddie Mac to raise substantial amounts of capital. Summers acknowledged this might not please the shareholders of the two publicly-traded companies, but said it was the "single most important step the government could take." Shareholders, watch out below!

Does anyone really think that the shorts put Bear Stearns (BSC) out of business? Someone needs to get the blame, but deep down, we all know that Bear had take on way too much risk and got stuck in one big margin call. Lehman (LEH) seems to be next in line; Bear's Achille's heel was subprime residential mortgages, and Lehman's is over-leveraged commercial real estate. Lehman was trading down yesterday until the article below crossed the wires, and the shorts went scrambling.

US senator asks Justice, SEC to probe Bear trading

Mastercard (MA) and Visa (V) are slated to report earnings April 29th and 28th, respectively. Both are in their quiet periods, and no news beforehand is considered good news. There were no warnings because both will have better than expected first quarter numbers, but what will the future look like? Now that the both Bernanke and Greenspan have finally acknowledged that we are in a recession (it must be true), this has to affect guidance. After all, how long can we use the "shift to essentials" (gas and groceries) arguement?