MV Weather Report: Short Covering Hurricane
Rain or shine, we review the day's biggest stock stories.
And oh, what a rally it was. Explosive is the word I would use to describe the last 3 trading days. From S&P 680 to today's close of 750. Simply amazing.
What lead the move? News, which breaks with the cycles as Professor Jeff Cooper likes to say. General Electric (GE) finally had its debt rating cut by S&P - no surprise there. The market loved the news, sending GE up 13%.
Then, during a speech today, Ken Lewis, CEO of Bank of America (BAC), said B of A most likely won't need more government capital. The market loved this as well, sending BAC up 18%.
Here's what Minyan Peter had to say about Bank of America:
"Ken Lewis' comment about making $50 billion before provision and taxes reminds of the ad for the tropical paradise which guarantees a sunset every night.
"$50 billion sounds like a lot of money. But $50 billion before provision and taxes on the combined Merrill Lynch/B of A balance sheet of roughly $2.5 trillion is roughly a 2% gross margin.
"In the glory days of banking, 2% margins were what the best banks made after provision and taxes."
I've been talking about the importance of the mark-to-market meeting for some time; today, it happened. As expected, not much came of it; Tim Geithner said mark-to-market shouldn't be suspended, which was no surprise. There will be a congressional hearing in 3 weeks for further discussion of the rule.
The reaction to the news has been extremely positive; market sentiment seems to have changed this week. But is the bull back? I don't think so. Today's action had a performance-anxiety feel to it, as Professor Bennett Sedacca noted:
"It feels like performance anxiety is setting in.
"There's a lot of cash, increased shorts and many under-invested folks. Not to mention oodles of cash being liquidated from mutual funds near the lows.
"...My firm remains long equities in our 'all in' position."
Risk is high, and this is most likely a short covering rally. As for tomorrow, traders will be watching for the trade balance and import price indices.
Have a great night, Minyans!
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter