MV Weather Report: Stress Tests Yield Foggy Results
Rain or shine, we review the day's biggest stock stories.
We may hear rumors of who passed and who didn't. I'm confident that most major banks passed. What's interesting are the parameters: They require banks to project their credit losses and revenue for 2009 and 2010, as well as how much they would need to have in reserves to cover losses in 2011. Some analysts are concerned that smaller banks may not pass such tests, due to their real-estate exposure.
On the Buzz today, Professor Kevin Depew opined:
"Now that the "stress test" baseline and "more adverse" scenarios have been released, we have a window into what the people who missed forecasting the downturn in the credit cycle in the first place are thinking in terms of when it will end.
"The government views a 3.3% overall contraction with 8.9% unemployment and a 22% decline in house prices this year followed by a rebound in GDP of 0.5%, a 10.3% unemployment rate and a 7% decline in home prices next year as the "more adverse" scenario.
"Not surprisingly, their worst case scenario is what I would consider a best case scenario for the economy."
The market initially sold off on the news; however, just as with the FOMC, that first move was false. The market shot up 10 minutes later to a high of 870, leaving the S&P 500 almost unchanged for the week. The banks of course advanced on this, with Bank of America (BAC), Wells Fargo (WFC), and JPMorgan (JPM) all trading strong. Morgan Stanley (MS), Goldman Sachs (GS) and Citigroup (C) were not as impressive, comparatively speaking.
Bears are now starting to quote John Manyard Keynes: "The market can stay irrational longer than you can stay solvent."
I would offer that the bulls were quoting this near the 666 bottom.
Have a great weekend, Minyans!
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