Tuesday, May 12, 2009

Is it Just Me or Does the Market Feel Manipulated?

I've been at the market for pretty much my entire adult life and it's been ages since I've felt as uncertain* as I do right now.
The bank's pre-announcements, announcements and then re-announcements of "happy, happy, joy, joy" first quarter earnings, the selective leaks of the stress test results and all the "green shoots" talk seemed intended to gun the rally past where it might have ended. Here are a couple folks with related thoughts.
From Minyanville:

Financials Use Artificial Rally to Issue Real Equity
Not surprisingly, and very wisely, it isn’t just banks raising equity these days. I’m not the biggest fan of Tim Geithner, but I’m starting to think he’s a heck of atrader. Some of the biggest shots around would've been proud to have engineered his short-squeeze (formally known as a “stress test”), into which banks like Wells Fargo (WFC) and Capital One (COF) have been selling. Geithner seems to have understood the performance anxiety he could generate, and to have taken full advantage. Frankly, he deserves a lot of credit for pulling it off.

Okay, let me stop digressing. Smart companies (like Bank of New York (BK) and Morgan Stanley (MS)) are taking advantage of this arguably artificial rally to raise equity without difficulty. A couple of months ago, some of these firms might not have been able to sell stock at any price, let alone today’s prices. It’s yet another testament to the power of like-minded thinking by portfolio managers: I’ll buy it if you’re buying it, but not otherwise. (Now comes another shameless plug for my upcoming book, The Undoing of Cowardice, which talks about this tendency and suggests ways for investors to recognize and profit from it.)>>>MORE
From BloggingStocks:

Whitney calls bank rally 'the great government momentum trade'

Meredith Whitney, bank analyst extraordinaire, reiterated what she's been saying from long before the financial crisis propelled us into the worst recession in most people's memories. Banks are overvalued, she said, and the government enabled them to have better first quarter earnings than they should.

Whitney said that "the underlying core, earnings power of these banks is negligible," and added that as consumer liquidity retracts and consumer credit contracts, "consumer spending is going to be less than people expect going forward.">>>MORE
*On the one hand, I am reminded of a childhood hero:

"I can distribute more stock on upticks than I can on down"
-E.H. Harriman, railroad man and Wall Street pro.

On the other, of what happens when a neurologist is interested in some of the same stuff I am: