Banking Index Update

While the media and most of the establishment are now quite comfortable that the economy has averted the worst case outcome, reality is very different. We averted "a" worst case outcome. There will be more outcomes that most likely cannot and will not be averted. It seems quite obvious to me that this is reflected in the Banking Index. In fact, its rally can now be contained to a mere four days worth of positive price action. I would suspect much of these gains were fueled by substantial short covering as the actual advance-decline line for the index made a new low quite quite some time ago. But all of the spin surrounding a recovery has allowed the banks to raise tremendous amounts of new capital (weakening shareholder equity) and given many a chance to repay their TARP funds. A very foolish decision given the enormity of this crisis. But we already knew management at these institutions was incompetent because they wouldn't be here were it not for you and me. Banks pay massive bonuses courtesy of the American people while we rot.

As an aside, I was talking to a friend a few weeks ago who works on the JP Morgan Chase company acquisition integration team. He was talking about how great their bonuses were this year. He was even talking about the possibility of JP Morgan Chase buying Citigroup. Now, this was his personal opinion as opposed to any insider information. I couldn't help but laugh when he said that. I told him he was living in a bubble.