Bears Feasting on Bank Stress and BS Bailouts

Stress: The consequence of the failure of an organism to respond to emotional or physical threats, actual or imagined.
There are voluminous reasons to believe that, while the markets are distracted by the gross mismanagement of various Euro Nations, the US Banking system is still experiencing significant degrees of stress. While various US Governmental programs have pumped cash into the failing behemoths like terminal patients, the patients (banks) seem to still be facing the same mortal fate as the rest of us....


The organisms (ie the banks—Citi, Bank of America, etc) are not responding whatsoever to the threats posed to them. A typical response to a stress related threat is called fight or flight, and to me the response thus far has been FLIGHT. The flight to safety for the failing banks has been to run to Poppa (Poppa being Uncle Sam). The Banks continue to be the recipients of a free money policy from the FED, where they are being lent money at ZERO, and they are loaning it, albeit on the stingiest of terms at 3%. I think any of us could show a profitable quarter if our uncle gave us an interest free loan, and we went to the streets and lent it at 3%. Cmon. This is not rocket science, but we are repeatedly told the banks are moving back toward healthy performance. They are healthy because they have a steady stream of Government provided oxygen, and when this is cut off these patients will die.

Signs of Stress: Worry, Poor Judgment, Nausea, Diarrhea, Dizziness
Why Stress JT, why are you stressing my Monday? The reason I am sounding the stress alarm is this: I am worried, I see the President’s economic team demonstrating poor judgment, I see a market that’s making me nauseous, a trading community that is shitting its pants about the Global Banking system (and we’re supposed to be the leaders!), and a dizzying set of forecasts telling us that everything is A-ok. I see all the signs of stress, but the left keeps telling us that things are getting better. But don’t just take it from me; listen to the US Department of Treasury. Way back when, in 2009, the Treasury Department decided to quell the fears of the public to prevent a run on the banks, and to achieve this comfort they came up with a novel idea: Let’s perform STRESS TESTS. These supposedly objective overviews of the Nation’s banks was to determine what type of stress they were under, and what type of stress they could handle before breaking down. The tests were basically a sham, think of them as open book tests where the questions were often shaped to the answers. One of the key places where the stress tests failed to mask a growing problem was with the macro-factors hypothesized in the WORST CASE SCENARIOS. Here, the collaborators all agreed that one of the only ways these banks would need to be recapitalized was if housing dipped again, growth remained flat in 2010, and UNEMPLOYMENT rose to 10.3%. HMMMM…

Stress Management
There are several ways to cope with Stress. Effective methods of stress management in the face of high demands involve learning to set limits, and refusing some demands of others. To this end, our government has been highly ineffective; the US Government has set no limits, they have created program after program to protect the banks they have categorized “too big to fail,” all while allowing record numbers of small community based banks to die. Also, the policies employed by the Treasury and the Fed have demonstrated no interest in refusing the ever growing demands of the Banks. Yet, the demands of small business and the unemployed of America continue to fall on deaf ears. In the past 18 months we have had TARP, HAMP, PPIP, and BOND BUYBACKS, among other Government created stimuli to prevent TOO BIG TO FAILS from failing, yet they still are. We just aren’t paying attention. The main metric I continue to see as the looming lynchpin of this disaster is Unemployment. The unemployment disaster is barreling towards our economy and our banks like a runaway freight train, and the tunnel vision of the pundits is seeing the lights of the freight train as a light at the end of the tunnel. That light is not the end of the tunnel, it’s the headlight of the locomotive about to pummel the banking system, and it’s probably going to be quite a collision. With the Bureau of Labor and Statistics using every creative mathematic formula possible to keep Unemployment under 10, the proof is in the puddin’. We all know people who have lost their jobs, and just can’t find a new one.

The Breakdown: When a person becomes unable to function in day-to-day life due to difficulties adapting.
The day to day viability of the major banks seems to be moving towards highly questionable, as lending has not increased. Further, the housing and mortgage markets are seemingly worsening, which, to me, signals a move toward a calamitous breakdown.
The situation is not getting better, it’s getting worse, and the 10.3% worst case scenario is effectively upon us. The banks are stressing big, and as more people lose their jobs, less people pay their mortgages, and more stress comes upon our populous and our banks. Do yourself a favor and don’t buy US bank stocks, it could be detrimental to your portfolios future. And if you already own them, sell them soon, as things are about to get considerably worse. The market may pop this week, as it’s an option expiration week (which historically has upside action), but don’t get fooled into thinking all is well. This market is still in correction mode, and the employment situation will be the leading indicator in taking the market to lower levels. At 7500, this market may present some generational values, but first see which banks are still breathing.

HOT SHORTS
With devastation and destruction of the horizon for the Global banking system one great way to profit from the cleansing correction is Short Selling. No, not short selling to make stocks go down, but educated informed trading strategies employing the short selling of clearly overvalued stocks. There are a lot of them out there, and they aren’t that difficult to spot. The recent 70% market upturn has had the pronounced effect of raising the prices of stocks which don’t necessarily merit the rise. The term we hear over and again is a rising tide raises all boats, but if you see a rising boat with a big hole in the bow, odds are it’s gonna sink soon enough. Look out for the sinking ships. The Bears experienced some rough seas last week, but they still seems to find some treasures in the following names:

NSU JOE UA JSDA ILF

Rising Stars
A couple of names that have been slowly making their way up the list of most requested shorts are:

NFLX WYNN STP YGE

BEWARE THE BANKS and trade carefully this week, as it is expiration week.