When Bankrupt Firms Lead the Way Higher... ~ The Risk Averse Alert

Wednesday, April 14, 2010

When Bankrupt Firms Lead the Way Higher...

I was scratching my head over certain technical aspects surrounding today's rally ... until the not-so-subtle truth behind it hit me...

Banks +3.40% and Financials +2.59% ... essentially leading the way higher? These fraud-rife, fantasy-filled bastions of irresponsibility taking charge on a most surprising day delivering appearances of a breakout following endless weeks and months demonstrating nothing but broad, underlying technical weakness?

This begs the question: is someone being set up? Could it be Mr. "Banker of the Year 2009" whose business only shows signs of loan delinquencies subsiding? One wonders how durable is JPM's [supposedly] improved position with home foreclosures in Q1 2010 up 35% (a record) from Q4 '09.

One also wonders given the relentless continuation of the physical economy's collapse just how long the carry trade can last. Maybe a net exporter of physical goods like Japan can get away with such monetarist debasement as has persisted there for twenty odd years, but here in the U.S. we haven't the luxury of export-oriented industry whose products find commanding global demand, particularly now that the securitization market has gone the way of Elvis. Thus, cash flows to leverage in an effort to postpone inevitable systemic insolvency simply escape the capacity of the United States of America ... the Fed and Treasury's momentary game of make-believe notwithstanding.

So, despite a few, unexpected technical surprises, sufficient is today's demonstration of "all things are not what they seem" coming at a moment when five waves up from March '09 bottom appear very near complete.

Fast Money
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