Diamond Slice

Carry Trade Least of Problems For U.S. Dollar

While we all first learned that bonds and stocks perform "inversely" of each other, because bonds are relatively safe while equity shares are more risky, it should be understood that this is firstly and finally a ridiculous adage to waste a moment recalling. The oversimplified credence should, and soon will be, destroyed once and for all as long term U.S. government debt falls hard with U.S. equities.

Most recently the near free borrowing cost of U.S. dollars in the short term, thanks to the Fed Funds effective rate at 0%, has spurred widespread shorting of the U.S. dollar to fund long positions in risky yet profitable assets such as stocks and commodities in recent months. This strategy known as a "carry trade" has been widely adopted as the most recent micro-trend among traders and is partly responsible for the fall in the USD's value. The reason why it is effecting the dollar more than any other currency is due to the expectations that the Federal Reserve will keep overnight Fed Funds rates at 0% longer than any other central bank.

Therefore, since the Federal Reserve's FOMC announcement on Wednesday afternoon nearly guaranteed that the U.S. Fed won't begin to tighten quantitative controls for the next six months or until employment stabilizes, suggesting that it may be awhile until the carry trades are unwound and the short positions covered. There is however the fact that the risky investments funded by the carry trades may be exited, potentially leaving no reason to stay short a currency which has already fallen so far so fast.

Unemployment leaped to 10.2% in October, destroying the most pessimistic estimates of 10.1% and dragging down any positive notes played by the productivity reports earlier in the week. Equities will have a hard time holding on to any of the gains from Thursday and may fall hard for yet another Friday session. 

Don't expect the dollar to hold any weight as Gold continues to climb higher, while Oil diverts from the precious metals in the wake of economic woes and unsustainable price levels.

Profit From Weak U.S. Balance Sheet & Economic Risk, Short the 10-Yr Treasury Note

One of most common and least sexy trades throughout the global hemispheres of market movers is the U.S. Treasury Bonds trade. Those brave enough to dive long into equities or commodities on the shoulders of the current are both delusional and progressively dwindling in numbers. This has rebuilt a twinge of respectability among current traders, as a "topping out" formation is building among equities in recent weeks. Searching for a fruitful tree still standing to shake, the smartest guys in the room have already begun talking about the money to be made by shorting the U.S. Government's debt. In an environment wrought with risk, limited reward and potentially devastating geopolitical factors, why not short the only asset that is still ridiculously overvalued? That's right, short the Long-Term U.S. Treasury Debt. Initially supported by the $300 billion Fed purchase plan, the debt has begun rotting away and compounding in an environment potentially void of future U.S. Government revenue growth.

In the chart it's plainly evident that the 10 Year U.S. Treasury Note yield increased into the early 1980s near the point where mortgage rates peaked at 18.45% for a 30 year fixed rate product, in October 1982, and the "S&L (Savings & Loan Bank) Crisis" began. Since the 1981 high yield of 15.84%, the 10 Year U.S. Note has neared the point of zero amidst accelerating deficit spending over the past decade.

The U.S. yield curve, based in a soppy overnight rate at 0%, has been tamed by Ben Bernanke's $300 billion program to buy 10+ year Treasury obligations and the less public Federal Reserve purchases of "toxic assets" from the GSE's and Government owned banks (Citi and Bank of America). Recent decisions to remove these two methods of backstopping American finance will effectively release the long end of the yield curve out into the wild. Interestingly, the Fed concluded to remove these measures amidst a climate of stagnation in economic activity and talks of further stimulus on Capital Hill, both headwinds to the perceived solvency of the U.S. government.

The strategy of shorting U.S. Treasury Debt is the only strategy that makes you money over the medium term irregardless of nearly every possible economic outcome. Should the economy recover and the Federal Reserve begin quantitative tightening by raising short term rates, long term rates will also rise as demand will fall for government debt replaced by riskier assets. If the economy turns back into contraction and stocks fall, demand for treasuries may spike temporarily but the bid to cover ratios in current auctions already signal un-sustainably high demand and will only drive yields lower for a very short time. As the economy weakens and stocks continue to fall , investors will pull out of U.S. government bonds due to fears of revenue destruction and insolvency. In the contraction scenario, there will be no desire to lend to the debt heavy U.S. government as Uncle Sam's AAA credit rating is again called into question.

The final risk to this strategy identifies the recently narrowed U.S. trade deficit, which had contributed to the steadily increasing demand for long term U.S. debt since 1982. Surplus dollars received under more unequal trade levels by foreign counterparts were invested almost completely in American bonds, thus driving the yields continuously lower and further perpetuating the American consumption that was fueling the deficit growth in the first place. This however is the final bubble which has yet to burst that will finally cleanse the over-leveraged consumption by the developed world, having followed the lead of the United States. In the unlikely event that U.S. consumption returns and trade deficits resume, trade partners have already shown their desire to hold tangible assets, signaled yesterday by India's trade of 6.7 billion USD for 200 tonnes of Gold (7% of the world's annual gold mine production). It is therefore our view that any "risk" of a resumption to the previous norm of global trade inequalities is counterintuitive and that growing imbalances with India and China will discourage policies to bloat their surplussed coffers with the final toxic asset... U.S. Government Debt.

To implement this strategy it is easiest to simply buy the Direxion Daily 10-Yr Treasury Bear 3X Shares ETF (TYO). This ETF gives you enough leverage (3X) to profit from the relatively minor swings in Treasury Yields and is much safer than actually shorting the U.S. 10 Year Note, because your losses are limited to the initial investment made. Make note, this fund will fluctuate directly proportional to the yield on the 10-Yr Treasury Note and inversely to the price.

Stock Issuance, Stimulus Spending Only to Hurt Dollar as U.S. Struggles

News out of London via the Financial Times has amplified the recent calls for institutional break-ups of incredible size and scope. Not just one but all financial institutions, once protected under the "too big to fail" sheltering efforts by governments and central banks, must now find viable core business plans to move forward. The mortgage heavy British lending giant Norther Rock, British Financier Loyd's , and the Royal Bank of Scotland face large divestment pressures from Tories bent on revenge and a ghostly Prime Minister Gordon Brown as England is facing debt levels near 100% of annual GDP.

The real fear for banks is that the probable need for further equity offerings will come to pass in the near future. British and American bankers both face a real danger as equity prices become less and less attractive given the simultaneous declines of the currency in which shares are held. Over the past 200 days the S&P 500, the per ounce price for gold, and the WTI continuous spot price for crude oil have increased by 25%, 30%, and 80% respectively, while the US Dollar index fell by 10%. The three assets increased by varying degrees of intensity, responding congruently to market moving news throughout the period following the March 9th lows, while the dollar's value changed with a negative correlation. 

According to the chart, it were the commodities who outperformed the US equity market since the March 9, 2009 low of 666 for the S&P 500. Then, why should foreign investors risk allocating funds to U.S. corporations bearing 20+ P/E valuations and an increasingly jobless consumer base. It is increasingly likely that they will avoid such risky assets as U.S. stocks, where the average price appreciation over the past 200 days is halved when accounting for the drop in the value of the dollar. 

On top of these inflationary pressures, equities in the U.S. and Britain will most likely begin to depreciate as firms, not limited to the aforementioned banks, including U.S. Tarp recipients such as Bank of America and Citi Group find ways to raise additional capital needed by breaking off business arms and issuing more shares. It is the increasing share issuance, occurring as companies squirm for much needed capital, which will dilute shares in the coming months.

Finally, the dollar will likely continue it's inverse stickiness to equities as commodities maintain a direct correlation for a period of time following the imminent pullback in equity prices around the globe. The absence of stimulus and optimistic guidance for the next few quarters amidst rude reports of struggling economic activity will pull down all asset classes along with commodities. But should equities fall through one or more levels of resistance and begin to change the tone from one of hope to one of fear, commodities will break free from the current trend and spike upwards as the dollar begins to fall on the fears that inflation will mix with a retreating consumer.

The U.S. Fed, Treasury, and White House have made it brutally apparent that they will not take "no recovery" for an answer and will continue pumping money into the system by whatever means necessary. Yet there will come a time when the global appetite for U.S. debt will curb and the pressures of inflation will truly be felt. This time will be signaled by the market and will become apparent when equity markets fall on news of further stimulus spending. It appears that yields on long term treasury debt are already beginning to rise as the $300 billion Fed purchase program of such Long-Term U.S. paper has ceased, and may cause real interest rates on long term U.S. debt to increase. Unfortunately, such a decrease in demand for U.S. Debt would exacerbate the ill effects that a widening U.S. current account deficit will have on the dollar. A growing current account deficit had been largely responsible for the falling U.S. Dollar index from 2002 through 2006 that, despite it's narrow levels not seen since 1991 at 2.8% of GDP, will ultimately trend wider.

The weak dollar has most recently been fueled by the widespread dollar borrowing to fund "carry trade" investments, where the expectations for a near zero Fed Funds rate to remain low hurt the value of the dollar. When the Federal Reserve signals that it will begin tightening it's quantitative measures, another currency will take the place of the dollar, causing it to appreciate in the short term. However, fundamental headwinds facing the U.S. currency described above will ultimately outweigh waining carry trade borrowing to drive the value lower. 

Profiting From Volatile Crude Oil Prices and Safe Guarding Your Dollars

Cracking the code of deserving prices for oil futures has become an interesting game of cat and mouse between the bulls citing a momentous trend of dollar destruction gaining momentum and fundamentalists hammering home the demand side of the argument. True, inflationary environments for currencies allow for the relative value of commodities priced in the domestic paper to increase. But how valuable is the asset actually? Can one actually short a commodity when the currency it is traded in continues to lose value? Of course a sophisticated trading platform with forex exposure could hedge out the negative effects of a deteriorating dollar on a short oil bet. One way for an average investor to take advantage of this situation and minimize their risk of loss is by playing the volatility through shorting the economic output end (demand) of the commodity basket and buying long the inflation end (supply).

This can also be difficult to the average investor because there is no pure way to play this through equities or ETF's, but here we will examine some possible strategies. One might suggest that you simply short the WTI spot ETF (USO), but many of these organizations are bundled into "basket funds" or even mainstream indexes such as the S&P 500, causing for unreliable price fluctuations. These firms must also be exposed at some level to one or many currencies, which could deteriorate in a global inflationary environment.

Perhaps instead you short a firm's equity whose main line of business is refining petroleum and simultaneously buy an equal dollar value of shares in a firm leveraged to take advantage of a devaluing currency (i.e. gold producers). Buying into a corporation based in an economy fueled by commodity exportation will also increase the ability for the average investor to shield against currency depreciation. With this strategy an individual will not be exposing his hide for a slashing should the inflationary environment take longer than expected to set in, potentially exaggerating the gains from the Short crude position, while also allowing a short entry point by selling the long gold shares and buying more oil shorts.

Going short the USO (WTI crude oil spot ETF) and long international gold miners such as Company De Minas Buenaventura (BVN), based in Peru, could be used to achieve this strategic position. BVN is emerging from a strike situation at the moment and may provide a cheap entry point into a growing firm in a commodity exporting currency.

Three Cheers for Costy Commodities and Appreciating Equities Due to Currency Devaluation!!!

As the price of crude oil drives higher towards the $80 mark the shorts are rightfully becoming nervous as this economic life blood resource appears to be trading higher, not due to fundamental data, but to the currency in which the commodity is traded. Comparing the price appreciation of USO (WTI crude oil spot ETF) to GLD (gold spot ETF) from the market bottom on February 19, 2009 to yesterday at the close, the comparable difference in prices is unmistakable. Rightfully so, the price of oil has undergone a generous lift due to a combined forward outlook of global economic growth and the macro inflationary environment which has had a considerable effect on the MSCI basket of commodities in recent weeks.

Yes! Gold and Oil are rallying along side U.S. corporate equity valuations... this must be the glorious recovery we have now come to expect. Never mind a housing index sub 20 and the responsible tax credits nearing termination in less than a month. Disregard initial jobless claims' sinusoidal dance around the 550,000 mark still having not broken below 75% of the record highs reported in March. Profits are coming in better than expected for many firms and these beacons of light allow for many to be swayed into a risky environment to purchase a basket of S&P 500 beauties at a 19.5 P/E as of Friday's close. Perhaps cynical criticism of those blindly investing in U.S. corporations on the "hope" of a new economy will pay out, as the bulls dig deep to pull the begrudged economy just over the next ridge. It won't have been a first for such a cycle to play out and may ultimately prove true this time around.

The U.S. trade surplus has narrowed from nearly 6% in 2007 by half, so a declining currency resultant of the perceived government's loose wallet may be curbed. But like a heavy buoy among lighter ones floating on a tidal current, the currency may be the last asset to surface as commodities, equities and wages rise under a new regime. What regime is this which beckons a new school of thought? The regime of government spending and regulation. A powerful mix of metasticising centralist rhetoric and political tethers will more than suffice to bind the American business and byproduct workers in a state of stagnation, unlike any past reality with models to compare. Reality will set firmly within the hearts and minds of hopeful investors now clinging to visions of previous wealth and overexuberant preferences. Whether the fault lies within our inability to spend or our reluctance to face the proverbial wealth destroying music, we must recognize the potential for a decline. 

As company dollars increase in count, furious constituents cock their brows at a government gridlocked  stimulus dispersion, ridden with pork barrels and inefficiencies; alas the sweet nectar of debt must turn stale and hard with age. Perhaps the U.S. Equity Market will bring turkey to the Christmas tables of Wall Street, but jobless parents and weak dollars will offer Main st. a cranberry jelly, more bitter than sweet.

Stimulus, Subsidy, Tariff... What Next?

While some took Bernanke's comments on the economy and state of the recession with a grain of salt, markets unsurprisingly jumped on the news during Tuesday trading. However, the optimism surrounding his words given at the Brookings Institution think tank was undoubtedly high-strung, considering the positive 1.1% retail sales gain in August. The Chairman's remarks in context read, "even though from a technical perspective the recession is very likely over at this point, it's going to still feel like a very week economy for some time." Assuredly those Bernanke was addressing knew that a "technical" recession requires two consecutive quarters of negative GDP growth, something which was never achieved during the economic downturn from 2001-2003. An economist would argue that such a statement may actually be cautionary in an environment where positive GDP growth in the U.S. during Q3 seems obvious.

More obtuse were moves by the American President to take further steps raising trade barriers with China, thus leading the pack of Western nations in their anti-competitive romp. The president announced a new tariff on Chinese made tires, which the U.S. International Trade Commission suggested start at 55% for three years, in order to stymie the leap in Chinese imports by 300% over the past four years. The plan represents thirteen tire companies and 15,000 workers which stand to lose their jobs given a complete takeover of the tire market by Chinese firms. A separate consulting firm however cites many U.S. based tire companies that have manufacturing facilities in China which will similarly be taxed under the plan. Such anti-competitive actions may save jobs in the short term, but will raise the average cost of goods sold in the united states and attempt to subsidize american industry towards competitiveness. Economists would agree that similar policy decisions, such as the tariff raising Smoot-Hawley Act of 1930, led the U.S. and world economies towards depression rather than recovery. Record low interest rates and a shifted liability from private to public sector balance sheets will not bring a roaring 2003-esque recovery, so long as unemployment, the hemorrhaging of our beloved "greenback", and anti-competitive policies face the consumer in the future.

First came subsidized employment through the stimulus and now tariffs where stimulus dollars just aren't enough. What comes when the dollars run out for a jobless consumer facing the inevitable inflation to be sown from two trillion dollars of government borrowing. What happens next?

Prophecy Trumps Present

Market watchers had more than a few descriptive adjectives to add to their repertoire, borrowed from headlines pertaining to the positive nature of ISM manufacturing numbers on Tuesday. The first reading above 50 at 52.9 for the month of August, ending 18 months of contraction, held an impressive 9.6% pop in new orders. Further positive news for the bulls came in the form of a pending home sales report, citing 3.2% monthly gains, yet the S&P 500 lost 2.5% to close below 1000 at 998.

The headline which broke the buyers' stride centered around rumors that a financial institution may be headed into bankruptcy. What didn't make headlines was the ICSC same store sales report, which cited a poor -0.7% decline against comparable 2008 sales, and a truly dismal Redbook report of a 4.1% yearly sales decline. While these figures have been crying out that the consumer continues to retreat throughout the past couple months, the "inventory rally" has continued to lift equity valuations to incredulously high figures.

Adding insult to injury, the ADP Employment report showed a significantly larger than expected number of unemployed workers at nearly 300,000 additional jobless individuals for August, compared to estimates near 250k. Similarly disconcerting were implications derived from a manufacturing orders report, where the increase in factory orders increased by only 1.3% rather than an estimated 2.3% increase. More than just a consensus miss, the report suggests that while accounting for a 4.9% spike in aircraft and automobile orders the future of the manufacturing sector may be less optimistic than previously foreshadowed by the ISM report. Strong response to the CARS (Cash For Clunkers) program and a bottleneck within Boeing's production pipeline bear responsibility for the advances in durable goods orders and are not indicative of sustainable growth in the sector.

The "inventory rally" has run its course and investors will now focus more on the potential within a jobless, cost conscious and fearful consumer base. Friday's August Employment Report will surely move security valuations of equities, commodities and debt as movers and shakers strive to catch the next trend before it occurs. Will "leveling out" manufacturing and housing markets allow for enough jobs and wealth to be preserved and convert consumers from savers to buyers? The next six months will decide as the third quarter performance and the looming holiday season will weigh the true strength of the U.S. economy and equities moving forward.

Does Rosy Recovery Fit the Bill?

Doom and gloom seems all too faux pas to the casual investor keeping up with "the Journal", FT and perhaps the Economist, as Bloomberg runs articles documenting the recovery just over the horizon. One report by independent analysts cites a jobs report for the month of August at merely 250,000 additional jobs to be tallied on the total unemployment rate. These times are precarious to say the least as a lackluster "back to school" environment was outweighed by the grand finale of "cash for clunkers" to spit out consumer numbers for July and August that beat estimates.

So where to now? Cash for clunkers is over and may have added a 0.5% boost to Q3 GDP according to Mike DiGiovanni, sales analyst with GM (General Motors), yet how much change really comes from ramping up the industrial sector for one quarter and adding some temp workers to muddle the employment picture? How much will stick? This type of stimulus is very similar to the Chinese strategy which effectively allowed consumers to buy specific durable products at extreme discounts.

The final Press release of the C.A.R.S (Car Allowance Rebate System) on August 26th announced a total of $2.88 billion in rebates applied for and 690,000 clunker transactions by the deadline. Trusting these figures, the average consumer received an approximated $4170 rebate which translates into a rough 15% discount, given an average price of a new car at $28,400 according to the Federal Trade Commission. The result of the program is a temporary stimulus to the durable goods pipeline and the draining of disposable income from many consumers pockets, as any person who was in the market for a vehicle in the past and/or future year most likely jumped at the window of opportunity and made a purchase. All of these consumers have essentially sidestepped the first year of depreciation, but is the economy any better off? Don't we want Joe the Plumber putting that $20,000 into a down payment on a new home rather than a Corolla, Civic or Camry (the three top selling vehicles under C.A.R.S.)?

The thousand dollar question remains, "will the inventory rally transfer into sustainable growth on the consumer front, void of government stimulus?" The United States has an incredibly large deficit which has been publicly approximated at 9 trillion dollars ten years from now by the Obama administration, and $1.6 trillion deficit in 2009 alone. The $700 billion stimulus has only appropriated $300 billion in funds so far and interest from previous deficits must also be financed by debt issuance over the course of 2009 and 2010. The savings rate has risen dramatically from 1.8% of disposable income in 2007 Q2 to 5% in 2009 Q2, alarming economists that individuals may be retreating from previous consumption habits in an economy where the consumer supports 70% of GDP.

The employment numbers for July will shed some light on the strength of the consumer, but the report should be carefully dissected and jobs related to manufacturing and durable goods should be understood as potential outliers over a long term trend. The picture is coming into focus, yet there are so many issues which have simply been blacked out that will come to pass whether we are looking at them or not. Asset values on banks balance sheets which have been artificially inflated will be checked once they are liquidated and consumers will decide the fate of the production pipeline moving forward.

Fed In Focus; Decisions to Move Markets

The nature of financial markets are such that one may never assume certain patterns in economic data will have identical effects to enigmatic signals defined throughout financial history books. Ultimately the market accepts or denies information and weighs the significance relative to all other forces at work. One particularly new phenomena in U.S. finance is the forward vocalic nature of the presiding Federal Reserve Chairman Ben Bernanke. Unlike previous chairmen, Bernanke has been forced into the limelight through House Financial Services Committee, Senate Banking Committee, and other Congressional Testimonies throughout the past year. While his metamorphosis from "steel trap" regulator to market projectionist has been eloquent and discrete, the projection of positive 1% GDP growth in the second half of 2009 is extremely bullish in the midst of a recession.

The FOMC meeting to be concluded Wednesday afternoon is speculated to give further steam to the bullish engine running on earnings season fuel. The complete comments and notes from the meeting won't be released for another two weeks, yet information addressing the Fed Purchase of $300 billion in long term Treasury debt (or abandonment thereof) will certainly move debt and equity markets. Bloomberg reported two influential macro-analysts, Laurence Meyer and Lyle Gramley, are calling for this Fed meeting to signal the end to the Fed Treasury purchase program due to the "market fear that the Fed is going to monetize the [goverment's] debt."

The earnings season of late has made a compelling case for more companies to find future bottom lines in the black, yet we must all reconcile our giddy reactions to positive earnings with the brutal truth that actual dollars changing hands continue to shrink. GDP is not a measure of corporate profits, but instead a mounting or receding of spending by consumers and firms. The current "recovery" has been fueled by corporations rebuilding inventories as jobs continue to be slashed to reduce cost while revenues on average continue to fall, yet management of the new consumer reality has caused firms to beat profit estimates and invoke waves of adulation from global equity players.

U.S. firms may find true revenue growth difficult to acquire should Redbook and ICSC continue to report awful retail sales and more cost conscience, increasingly jobless consumers play their hand. Close attention to Fed decisions will be well spent as the bond pits decide the fate of the U.S. credit score, while Thursday's jobless numbers may prove more meaningful in the wake of earnings.

Life After Earnings For Banks: Vindicated or Vilified?

Analysts across field are calling for the U.S. economy to "bottom out" in the second half of 2009, calling for GDP growth in Q4 but hesitant to take a stand regarding the near term economic forecast. Meredith Whitney drew her own proverbial line in the sand, calling for shares of Goldman Sachs (GS) to reach $186/share. Goldman has profited from the volatility of the market throughout the recession and will most likely blow out the street's estimates yet again, but does this tell us anything about the banking sector as a whole? Unfortunately Goldman doesn't foreshadow strength in commercial banks, yet the XLF Financial ETF gained 6.4% on Monday compared to a lessor 5.3% for GS. The bar is high for commercial banks to beat earnings given a steep yield curve that offers banks a comfortable Fed Funds to 30 year fixed spread, offering a 5% yield for banks, yet purchase and refinance mortgage levels have been lackluster of late. The contentions unknowns facing banks moving forward are credit card and commercial mortgage defaults. 

Credit card default rates in May ranged from 8.3% on JP Morgan's (JPM) books to 10.5% of Citigroup's (C) card holders missing payments, while Bank of America (BAC) expects to write off 12.5% of remaining balances. Credit card legislation signed into law on May 22, 2009 will force banks to treat borrowers to notices of rate hikes and the option of recapturing their lower premiums if minimum payments have been made on time for six consecutive months following an increase. While the law is less pressing on banks' balance sheets than some had expected, the end result must be lower profits from credit card arms of all commercial thrifts.

Commercial real estate prices, vacancy and sales have been deteriorating at increasing rates of late and are still well far from recessionary levels of 2002 and 2003, suggesting that trouble in this sector will worsen in the near future. CIT Group (CIT), not to be confused with Citigroup, specializes in holding commercial mortgage paper and is now seeking government aid with hopes of avoiding bankruptcy. The group presently holds $2.3 billion of TARP funds on the balance sheets but needs more funding to avoid collapse. The following charts offer a visual perspective to the commercial real estate market, begging investors to do their homework before piling into thrifts with exposure to the space. 

Goldman Sachs reported earnings of $4.93/share before the market open on Tuesday, crushing estimates as expected, yet the all financial valuations suffered from the admission of reality... Goldman isn't a bank and shouldn't move bank shares! Goldman Sachs is a trading house and investment bank but isn't exposed to any of the issues facing traditional banks and thrifts. The later banks begin reporting Thursday as JP Morgan (JPM) announces results followed by Citigroup (C), BB&T (BBT) and Bank of America (BAC) on Friday. Dissecting the books of these giants and separating the TARP infected tissue from the healthy muscle may prove impossible, but results from credit card and commercial mortgage arms will read clearly in black and white. Judging from statements by Johnson and Johnson (JNJ) and Alcoa (AA) it seems that we may get our fair share of BS as forward looking statements describe the "signs of a bottom" cliche in one hundred different ways. Will investors and traders be satisfied by shaky rhetoric combined with disconcerting top and bottom lines? Can financial institutions really be trusted with TARP funds and FASB revisions still clinging to balance sheets like decaying scar tissue over infected internal organs? Only the analysis of revenue growth and earnings potential among banks will begin answering these questions, while time is the ultimate decision maker in such a volatile era. 

Don't be surprised by negative reactions to neutral results among banks for the quarter. This isn't the time to play guessing games with positions. While passion and technicals move markets in the short term, ultimately shares revert to the mean of fundamental analysis.