Bank Losses Larger Than Expected, But Stocks Rally

The bank stocks are lower again this morning, after larger than expected losses at both BofA and Citi were announced this morning. BAC also will be getting additional govt aid to help it close its Merrill Acquisition. BAC said it will slash its dividend to a penny in an effort to preserve what would have been $2 billion in payouts.

Citi will be splitting its company into two parts, in an effort to shore up its balance sheet. Also, the US Senate has voted to release the second part of the TARP plan, another $350 billion, which should be available to ailing banks. Maybe this time they will try to focus the actual "troubled assets", instead of just giving large sums of money to the banks.

All of the above has eroded confidence in the banks. The stocks of the big banks are trading lower, likely on fears of further dividend cuts, which is one of the main attractions of the bank stocks at current levels.

In economic news, the CPI fell -0.7% for December, reinforcing the low level of inflation. On a yr/yr basis, the CPI was up a scant 0.1%.

The dollar is lower this morning vs. the Euro, and this is helping boost commodities. Oil is up above $35, nat gas is higher, and gold is getting a nice bounce. The 10-year yield is also up to 2.35%.

The VIX hit its 50-day average yesterday at 54, but has dropped 15% from those levels. Today, it is down -9% near 46. Bulls would like to see the VIX continue to drift lower.

Trading comment: Yesterday's call to take profits on some of our short ETFs was a good once. The market rallied back sharply by the end of the day, and is extending that rally today. Today is options expiration day also, which could add to volatility. It is also a Friday ahead of a holiday weekend, which usually makes traders weary of taking big positions.

But next week kicks off with the Obama inauguration, which I hope will spark some enthusiasm and confidence among investors. The market is now back into oversold territory, though not deeply, and due for more of a bounce. If the start to this month is an indication of how things are going to be in the near-term, we are going to have to shorten up our investment/trading time horizons, and look to book profits quickly when we have them.