Wednesday, April 15, 2009

The bank "stress test" con

The stress test is just another con!

Look at the news this morning:

WASHINGTON — The Obama administration is drawing up plans to disclose the conditions of the 19 biggest banks in the country, according to senior administration officials, as it tries to restore confidence in the financial system without unnerving investors.

The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.

While all of the banks are expected to pass the tests, some are expected to be graded more highly than others.

Look what Nouriel Roubini had to say about the stress tests:

But if you look at the actual data today macro data for Q1 on the three variables used in the stress tests – growth rate, unemployment rate, and home price depreciation – are already worse than those in FDIC baseline scenario for 2009 AND even worse than those for the more adverse stressed scenario for 2009. Thus, the stress test results are meaningless as actual data are already running worse than the worst case scenario...

In other terms, the results of the stress test – even before they are published – are not worth the paper they are written on as they make assumptions on the economy that are much more optimistic –even in the worst scenarios that the FDIC has designed - than the actual figures for Q1 of 2009.

Now is this really news? We knew the stress test was a con; it was just that yesterday the bears were able to regroup and blast the financials, like they did on March 19th. That was the day Citigroup released the news that they were in the process of a registration for their shares so those short the common, can finally get out of the bet that is blowing up in their faces.

The next day, the market sold off a bit, and then we went up again.

We had more of that news yesterday; and the financials were pressed just like they were then.

How about Intel earnings?

Does anybody really care?

In this environment, if you can show decent earnings, they'll pop the stock and run with it way more than they should, because there just isn't that many growth stories out there.

If GOOG reports half way decent numbers, will anyone even care about Intel's earnings?

Wednesday, on option expiration week, is normally when we get the turn.

Even on tax day!

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