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The Sun Doesn't Shine on Banks

|Includes:EA, K, Centrus Energy Corp. (LEU), MCD, SWK, UEC, URRE, URZ
Check me out this morning...Hosting "Varney & Co." - Fox Business Network at 9:20 am EST

The dollar continued to swoon, dropping to a 15-year low versus the Yen, and helping to send U.S. stocks higher. Low interest rates and more quantitative easing coming soon also continue to drive the dollar lower. Unfortunately, these super low rates haven't triggered a stampede for mortgages, as purchase applications and refinance applications recently slipped week to week and year over year. It's troubling in so many ways, but underscores the fact that other things must happen before people want to buy houses. Sure, jobs are the biggest key because healthcare and hitting Wall Street on the knuckles just isn't the kind of impetus that gets people to ponder home ownership.
I'm not sure the market hasn't gotten into an odd trap. Just as the government really wants a cheap dollar (this goes back to the Bush Administration, too) to spark exports and boost manufacturing. The thing is whenever there is good economic news it sends the dollar higher. So in an odd, perverse way we have to root for weak economic data. Obviously, this is an untenable position as we need to root for, and rally around, good economic data. Of course, what that means these days amounts to a wacky kind of interpretation that began last year with those so-called "green-shoots."

I'll take the rally because I see value in the market and potential in this country. But, it's not up to me; people need to see this potential. Part of the problem is trust, and there is no doubt nobody should trust the system. At this point nobody should trust a government that has made so many laws that will be cobbled together on the fly with mandates to harm more than heal. Each week sees more loopholes or trapdoors in healthcare, and already banks are taking massive hits from financial regulations.

Then there is mortgage-gate or foreclosure gate, which gets wilder every day, with the Federal Reserve suing banks it covers as a regulatory body but engages in commerce with on a daily basis. So, people aren't applying for mortgages even with rates people in the past would have died for. Of course, there are other problems as well, including the swinging of the pendulum. Before the guy from "Weekend at Bernie's" could have picked up a condo or townhouse now it takes a lot of proof. And, often that's not enough.

But now people with the resources and desire understand it's time to hold off to see how the mortgage scandal shakes-out. The chief judge in New York has a new rule that requires lawyers handling foreclosures to verify all paperwork. It's like Sarbanes-Oxley for lawyers. I find it interesting the Obama Administration warned Bank of America (NYSE:BAC) and Ally (indirectly) about fines if there are more faulty foreclosures, because taxpayers pumped billions of dollars into Ally so it's like the White House warning a cabinet department. Or, like the right hand slapping the left for reaching into the cookie jar. Go figure.

This thing with Chief Judge Jonathan Lippman making lawyers sign papers is the ultimate shot across the bow. This goes into effect immediately, meaning the 78,000 foreclosures in the works and new foreclosures as well. Adding more intrigue to New York is a new law signed by Governor Patterson that would make banks pay legal fees of homeowners who successfully defend themselves against foreclosure. I understand the Administration and key lawmakers like Barney Frank say they don't support a nationwide freeze on foreclosures, but a de facto freeze looks more likely each day.

The market gave up some ground into the close because the Fed's Beige Book suggested moderation in the economy. That means the freefall could be over. Unlike dropping a brick from the roof of a ten story building, the hitting terra firma process is different for the economy. It is a gradual process adding to pain and frustration from all the false signs and dashed hopes. We are in the midst of this right now.


We're hearing that Russia is angling to buy a stake or ownership in a U.S. uranium company. It sounds farfetched unless Putin has been a double agent all this time. If it's true it would be USU, UEC, URZ, or URRE. I don't think it's true, but I like the action in uranium stocks.

Things from Around the Market this Morning
By: Brian Sozzi, Equity Research Analyst

* While the market continues to drill down on the implications of QE2, it sure is playing a blind eye to some strong earnings results from corporate America. Many companies are beating strongly on earnings and raising guidance for the full year.
* By Secretary Geithner breaking down the currency debate into three categories, I think he actually flips the bird to China ahead of the G20.
* Electronic Arts (ERTS) shelling out supposedly $20 million for iPhone/Facebook game developer Chillingo is yet another sign of the evolution that is going on in the videogame industry. What is interesting about this deal is that it doesn't even include the rights for the follow up to Chillingo's top selling game, "Angry Birds."
* China's economic growth cooled to 9.6%, as reported overnight. I think the biggest standout of the report were retail sales, which advanced 18.8%. That type of growth certainly explains why Western retailers are outright giddy when discussing China, especially if their U.S. store base is mature.
* Companies remain in a "get even leaner" mindset following a year of slash and burn on costs. For example, Stanley Works Black & Decker (NYSE:SWK) continues to shutter manufacturing facilities, leaving many workers out of a job probably for quite a while.
* Even McDonald's (NYSE:MCD) is getting into the emerging market growth story this earnings season, reporting this morning a strong 8.1% same-store sales increase in A/P. That rate was 200 bps above the U.S.
* I wouldn't be surprised to see Kellogg (NYSE:K) serve up disappointing 2011 EPS guidance on November 2, when it reports quarterly results. The company warned on 2010 sales this morning, citing increased competition. With input costs running rampant, and sales sluggish, analyst estimates will have to come down for next year.