Up day counter to bad news

Investors seem unmoved by news of the swine flu pandemic and worse than expected GDP news released this morning.

Sentiment seems to have shifted to the positive, as everyone believes we have hit or are close to market bottoms, especially after successfully going through 1Q earnings reports from the major banks and the changes around mark-to-market accounting rules.

However, the late afternoon saw a quick pop and drop due to the Federal Open Market Committee statement:

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

It looks as though the FOMC thinks the economy could still get worse, but they are willing to stay actively involved in keeping the fed funds rates at an effective 0%.

New Credit Card Rules

Finally, our elected leaders are doing something that should help the average consumer, passing new rules on credit cards.

Yesterday, the House Financial Services Committee approved new (although borrowed heavily from previously released Fed Reserve guidelines going into place July 1, 2010) legislation that help counter heavy-handed and unfair credit card company practices.

Some of the benefits, quoting from MarketWatch.com's article:

• Prohibiting rate hikes on existing balances, except in certain circumstances.
• Requiring 45 days notice for interest rate increases and significant contract changes.
• Prohibiting "over-the-limit" fees when cardholders have set their own credit limits.
• Prohibiting "double cycle" billing, a practice in which interest is charged on debt that has already been paid on time.
• Prohibiting fees for payments made over the phone or Internet.
• Prohibiting payments from being applied first to a consumer's lowest interest rate balance.
• Establishing standard definitions for terms such as "fixed rate" and "prime rate."

Industry advocates, as they often do, claim that these new rules will prevent access to credit and higher overall fees.

This is highly dubious.

Already, prior to regulation, credit card companies have CHOSEN to remove credit lines from many customers, and increase interest rates on good credit. I have a credit score over 740 and two of my credit cards saw interest rates shoot up to 19% from 9%.

It is time to get some of these "fine-print" practices removed.

Going positive

We're past tax day. People are done dumping teabags and complaining about high tax rates that a majority of Americans don't actually pay.

The stock market ended up last week, and a significant part of the financials reported positive earnings.

Come on economy. It's time to go up and up!

Profit taking

Looks like the markets did some profit taking today, ahead of possible volatile earnings from banks. I personally thought it was a good time to bull into financials at near-term lows. I think after the bailouts, TARP, and new FASB rules, banks should have strong earnings.

Dead Cat Bounce?

Wall Street traders like to give names to everything, and this week, the phrase has been "dead cat bounce". As the saying goes, even a dead cat bounces when it hits the pavement. It is a reference to a phenomenon that as stocks tank, there are times that there will be a quick revival upward before a continued drop.

The past month, the Dow Jones Industrial Average is up 17.5% (including today's decline). Some would suggest that this week's decline is continued fall of the last 3 week's of the cat bouncing.

I disagree.

Unlike other situations, there are good fundamental reasons for a general uptrend. First off, the unemployment rate is still rising, but it is getting to a high point where it becomes difficult to understand where new job cuts will come from.

Second, the Financial Accounting Standards Board (FASB) passed new rules relating to how impaired assets are reflected on bank balance sheets and especially at valuing assets that currently only have "distressed transaction" prices. This I believe will improve bank balance sheets.

Third, the general market feeling is of awakening rather than fear.