Holy Deja Vu! Beware bank financings for market tops.

In light of the recent rally of the Dow from its March 9th low of 6700 to 8700 today, a feeling of deja vu fell over me. Now on the surface it would seem that the recent rally is nothing more than a bear market rally, which we have endured several times since the summer of 2007 when the first bank writedowns began, thus giving me a sense of deja vu. However, this was not it, as every rally has failed to do anything except lead us to newer lows.

No this feeling of deja vu came from the recent bank financings following the government sponsored balance sheet tests. Without question those tests were a necessity to shore up confidence in the US financial system for the government and its investors, as we certainly could not rely on the banks to tell us the truth of their capital strength. So when Bank of America, Morgan Stanley, or Wells Fargo came asking for money it was fair as the feds said shore it up or else.These financings were not my concern, as they were expected, my concern and feeling of deja vu comes from the banks that the US government rubber stamped as solid. The banks raising money without supposed need.

Let me take you back to last spring when the first nasty leg came down upon us. Bear Stearns was sold to JPMorgan for $2 (later $10) with the friendly encouragment of Henry Paulson, Lehman was still alive and well, as was brother Merrill, or so they claimed. Citigroup and UBS were still trading in the 20's, and Wamu was a solid holding of Berkshire Hathaway and the supposed Oracle (of what I am not sure, was buying more Wamu at $32 and GE at $22). The market rallied off the lows following the end of Bear, which led to a rally of confidence and a range of financings. The banks were solid, but decided to do the investment community a favor and sell them a paper at a discount to their 52 week highs of 2007. The rally was broad, one day up almost 500 points, and Citigroup gladly sold paper at $22, UBS at $23, and Wamu at $7. It was rally time and the results of selling into strength were brilliant . . . for the banks! UBS has not seen the $20's since the deal, Wamu was bought or saved at around $5, and Citigroup just got de-listed from Dow 30 and now trades at around $3. So where is the deja vu?

On a day which GM is bankrupt, the once largest corporation in the world by market capitalization, till a boy named Rick Wagoner walked into her life, and the US economy is about to add a little more debt to its 11 trillion dollar nightmare, we decide to rally upto 8700, up over 2000 points in 80 days, are we serious? The best part and the last piece missing to complete my groundhog day . . . JPMorgan and American Express now trading at 6 month highs and with a clean bill of health from the fed decide they should raise money.

That's it for me, I am taking my ball and going home. I have been too scared to put shorts on in the past 2 months because no one likes to get in front of a runaway train, but now its time. The banks told me before and I missed it. They are telling me again, and I won't ignore it again because they were smart enough to get us here. They were smart enough to get the taxpayers to fix their mess and keep their gravy gigs. They have to be smart enough to sell worthless paper at the top when they see it, they have done it before.