Stress Tests Fuel Bank Rally
Research for Online Investors

by John Dalt

5/06/09

The “stress tests” are all over the news today.   Bank of America (BAC) went public with the news that they have to raise $34.8 billion in the next six months.   The results are scheduled for release tomorrow after market close, but everyone seems to want to get the news out early, with their spin on it.   J.P. Morgan (JPM) does not need additional capital.   GMAC (GJM) needs $11.5 billion, and Citigroup (C) only needs $5 billion.    Wells Fargo (WFC) needs to raise $15 billion; this comes after Warren Buffett buoyed the stock at Berkshire Hathaway’s meeting with a strong vote of confidence.   The crazy thing, all the banks are up, led by BAC up 17% today!

The EPA proposed new standards for renewable fuels, concluding that ethanol causes more pollution than burning gasoline.    To get there, they had to factor in the chance that someone in Africa might ‘deforest’ the rain forest so they could plant corn!   These guys did not get enough sleep last night.   The comment period will be used by environmentalists and ethanol producers to influence the final language.   The Washington Post covered the story in “EPA Proposes Changes to Bio fuel Regulations.”

We warned you to sell your long-term bonds on more than one occasion.   Did you?   Interest rates are edging higher, making existing bonds decrease in market value.   It is only going to get worse.   The Fed is in the market buying treasuries, but they cannot keep the rates down, as other buyers are withdrawing to wait for higher returns.   The current rally in the stock market is pulling money from bonds.   You may get one more chance to dump long-term bonds when the market goes through a correction.   If it is severe enough, some money will flow back to “sit on the curb” and wait out the volatility.   This could drive down rates for a short time, which will give you an exit point.  Of course, this may not matter to you if you plan on holding until maturity.  But, it will  be gut wrenching to have a bond at 2.75% when inflation is clicking along at 11% in a year.

GM announced a plan today to wipe out shareholders.   They want to issue shares to the government, UAW, and debt-holders, and then do a reverse stock split with existing shareholders.   For every 100 shares owned, present owners get 1 share.   Do not write to me to tell me how crummy this is, I told you to sell it last year.

ADP gave a dose of rocket fuel to the market today with their preliminary jobs report.   The payroll processor reported 491,000 jobs lost in April, the street expected 650,000.   Compared to March’s loss of 708,000 the sun will come up in the morning.    The ‘official’ Labor Dept. jobs report will be released on Friday.

Oh! Bama and his Labor Department are working overtime to pay off big labor.   We all know about “card check”, where unions can intimidate workers to sign cards rather than a secret ballet.   The Labor Department recently announced it would not enforce compliance with financial disclosure laws on unions.   These were designed so union members would know how their union dues were spent and to stop theft and fraud by union bosses.   The Wall Street Journal had an article on this Union Payoff by Elaine Chao, former Labor Secretary.

Crude oil pushed higher today taking its cue from the stock market.   Natural gas jumped higher along with most commodities.   The economy must be improving, but is it really?   This rally has the feel of a bear trap; keep tight stops in case some bad news actually catches trader’s attention.

Ford is looking more like a survivor.   With GM and Chrysler headed to bankruptcy, Ford is the last man standing.    Today Ford closed at $6.26 up 360% since March 9.   I suggested it a month ago, but did not have the conviction to make the trade.   Shame on me!

Oh! Bama's move to tax overseas profits of U.S. based corporations is going to bite the hand that feeds him.  Some of the hardest hit are Hewlett-Packard, IBM, Cisco, Microsoft, and Google.  Each of these companies realized more than $1 billion in lower foreign taxes rates in their last fiscal year, according to the Associated Press.  Maybe Eric Schmidt Chairman and CEO of Google and campaigner for OH! Bama just had a "John Galt Moment".  When will they ever learn?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future

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