Market tidbits

• The equity markets are quite overvalued.  When the S&P 500 was below 800, I started seeing some decent valuations of various non-financial equities.   This is a bear market rally, in the sense that earnings can not, and will not, support the valuation levels of today.
• Don't let bank earnings fool you - a good chunk the Q1 profits by the major banks were derived by mortgage origination fees from people refinancing into 4.5% 30-year fixed mortgages.  Pretty well anybody who was creditworthy who could refinance pretty well did.  Second, thanks to the Federal government going trillions of dollars into debt, long-term rates are on the upswing (I have posted earlier that I think this is the beginning of a 20-30 year trend) along with mortgage rates - so that revenue will dry up.  There are still unrealized credit losses in the commercial loan sector and some parts of the home mortgage market.
• Obama's tax proposals will be another job killer.   Corporate tax increases like the elimination of parts of the foreign income deferral (a.k.a. Subpart F of the Internal Revenue Code), personal income tax hikes, possible cap and trade legislation, talk of a VAT, etc - this will depress earnings as the economy tanks.
• Bank stress tests mean nothing - due to two key issues.  First, nobody really knows the fair market value of the CDOs now on the books of these entities, and second, the problem now are Credit Default Swaps.  Credit Default Swaps helped down AIG, LEH, and Bear Stearns, and there is a real need for regulatory reform here.   The problem is that JP Morgan and Goldman Sachs are playing the Treasury and Fed in order to keep their market share and revenues from this business.   See the Institutional Risk Analyst for more on this.