Saturday, April 25, 2009

Stress Test Revealed

Does anyone out there really believe that the government is going to be truthful when the results of the stress tests are in? I certainly do not. This is nothing more than a mirage designed to appease the stock market. Those in power know that the media focuses upon large shifts in the market. While the politicians will try to separate Wall Street from Main Street when it serves them, a rising stock market protects all of them.

Many fail to understand the market is not the economy. When they see the headlines of the market crashing, everyone is aware of how hard things are. Those in power have to answer for the results. This is something they want to avoid.

At this moment, I believe Bernake and Geithner both know that the majority of the banks are insolvent. Simply, that means they need more money, a lot more. They are broke. The stress tests were sold as a way to 'grade' the banks. This is not true. They were put together to give the market confidence in these institutions. Sadly, this is another house of cards being erected.

The banks just received their first wave of bad news. Residential real estate is only 1/3 of the equation. We are already seeing the bubble in commercial real estate breaking. And, credit card defaults are on the rise. To quote the famous song: "We have only just begun".

The economy is in shambles. People are looking for the mustard seeds and green spouts. Do not believe any of them. This market is going to crash in the next few months. We got a boost because many of the companies "exceeded expectations" on their earnings. Big deal. Those expectations were so low that it is almost impossible not to meet them. Seriously, can anyone say that a Fortune 500 company's revenues being off 58% is good news? No. It is an abysmal time to be in business right now.

We invested trillions to prevent a credit freeze. Unfortunately, money aside, that is exactly what we have. Nobody is lending. The banks are holding onto the TARP money like a child holds a toy on Christmas morning. There is nothing being lend anywhere. And, if some of the ideas the government is proposing go through, the banks will tighten up even further. Credit card limits are already being reduced substantially.

I believe that on May 4th, the Feds will tell us that all the banks passed with a disclaimer that a few need to raise additional capital. The market will probably jump up another 150-200 points on this news. I, for one, will not buy a word of it. Eventually, the market corrects its misconceptions. In three months, these same institutions will have to report again. I do not believe they will be able to pull the same voodoo accounting they did this time. The proof will eventually come out just like it did last fall. I am here telling you the game is already up. The average person is just not in on it.

I would make my future plans accordingly.

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