NEW YORK, NY

"What's it all about, Alfie?
Is it just for the moment we live?
What's it all about when you sort it out, Alfie?
Are we meant to take more than we give
Or are we meant to be kind?
And if only fools are kind, Alfie,
Then I guess its wise to be cruel.
And if life belongs only to the strong, Alfie,
What will you lend on an old golden rule?"
-Burt Bacharach

What the heck were the stress tests all about? Really, I need someone to tell me in a tone that isn't condescending. I have the opportunity to speak to many smart people all the time and they give me that look (you know like "silly boy") as they explain the need for transparency. Okay, I get that you want to know more about the books and the assets. But, what does that actually mean to the market and to those banks? Consider the consequence if your bank is deemed to have failed a stress test. The bank may lose customers and talent. If that happens, wouldn't that make a weak bank weaker? The bank may be forced to take money from the government, and that means living under unrealistic rules such as pay caps of $400,000 on senior management. Again, does that make the bank stronger?

The stock reaction yesterday was curious as three of the ten emancipated banks traded lower while three of the nine left behind traded higher, including a giant move by Key Corp. (KEY).



Guttenberg Move Over

From the point of view of taxpayers it's all so frightening and unfair. $700.0 billion snatched away that could have went to pay any number of things but instead went to banks that a few months later were able to demonstrate they could raise money from the private sector. In the meantime, they got massive amounts of money, low interest rates, and cheap abilities to raise cash which all added up to a money printing press. Great for banks, but what about the taxpayers? How have we benefited? Heck, I thought that we were junking trickle down economics but this is the most egregious example of feeding the top of the trees with sunlight and nourishment while the roots rot as they cry out for help and fairness. So many people are wondering if anyone is listening.

We are caretakers for companies that grew too big to fail so must be kept alive. The tests were a farce. When will taxpayers stand up to revolt against this nonsense? They keep hearing nothing but great news like yesterday when the president bragged about a jobs number he knows will be revised into a greater disaster than it was or bragging about making money off TARP injections when these banks had access to so many forms of government welfare. The overpayment to Goldman Sachs (GS) through AIG alone wipes out the so-called profit. Plus, what is the net paper loss of this fiasco? I think that we may take a complete bath on GMAC... losing 100% of the money dumped into that bank.

I feel like a broken record but this is a fight of attrition as much as anything else. There is a basic concept of right and wrong. I understand what's happening at Chrysler is a redistribution of wealth from the investor class to unions. That was promised on the campaign trail. But, I heard the word "fair" over and over again. When TARP was first announced there were all kinds of wild suggestions on the internet about just cutting checks directly to taxpayers. I say wild because most of them had incorrect math, but the premise made more sense than what we got anyway. Ultimately, the premise was more in line with the notion of a trickle up economy. So, I continue to ask: "what's it all about?"

You know what's interesting is that in Germany one of its oldest companies is on the verge of going out of business. Arcandor AG, which owns Karstadt founded in 1881, is on the cusp of liquidating. The company has 43,000 employees and yet its fate was sealed when Angela Merkel stated a collapse is "unavoidable." How is it that European governments are pushing back on massive deficit spending and across-the-board bailouts while the nation that perfected free market capitalism is engaging in a juggling act to keep any number of failed businesses and industries afloat. I understand the notion of compassion, but what about compassion for the masses? Sometimes the best thing to do is to let nature run its course or at the very least draw a line in the sand. In business, the golden rule is all about the survival of the fittest not propping up the weakest.

In the end, all this could be easy to swallow if all this didn't look like a sham to create conduits that will forward an agenda. What's it all about? I think that I know, but I'm afraid to accept it and I hope the masses will fight it.

False Hope

I was told by the same experts that give me that silly boy look the Supreme Court would not hear the plea of Indiana pension funds, and they were right. I knew in my heart that the case wouldn't get through, but man was I hoping. This is a devastating blow to the rule of law. It also means other industries will now come under the umbrella of TARP and extreme government intervention and oversight. The Pay Czar is going to be laying down the rules in all types of different industries. In the meantime, auto part suppliers will get the $8.0 billion to $10.0 billion they requested yesterday. Suppliers have already received $5.0 billion in loan guarantees so this latest request seems like a slam dunk. Certainly, the share prices of companies at the heart of the matter were much higher yesterday and after the close.

Follow the Money

One of the biggest beefs I've had with the rally, other than the underlying foundation which is dubious at best, is the lack of volume. That may be about to change, however, as there was a surge in funds to long-term mutual funds in April as many believe the momentum will continue. Interestingly, this is the first time in months that U.S. investors put more money into U.S. designated mutual funds.

Let's watch crude oil today as it is stubborn and all it needs is for today's inventories numbers to show larger than expected draw downs. Even though inventory levels are at levels not seen in almost two decades crude oil is bubbling and ready to spurt.

Economic Data

In March, mortgage applications began to increase and the market cited the shift as one of the earliest of many green shoots. The trend lasted about a month, and since April 3 there has been a steady freefall. I realize that many big-time money managers don't use this report much because it's volatile week to week, but this trend is worrisome. Moreover, if it was great news on the way up why is it indifferent on the way down?

There were no major surprises in the trade deficit data reported this morning. However, we would say that the plunge in exports doesn't exactly say much for the recovery talk.

Morning Notes from WSS Research Desk

Brian Sozzi

* With all the talk of bond vigilantes (catch phrase is trying mightily to overthrow green shoots) leading to a steep increase in yields, and silly talk of a Fed rate cut this year, I have to say I am excited about the next FOMC gathering later this month. Recent Fed statements have lacked the flair of pronouncements issued upon the arrival of Bernanke as Fed funds have been effectively lowered to 0% to 0.25%. However, in the upcoming statement the Fed may reiterate its effort to promote lower yields (and subsequently stimulate housing demand) through quantitative easing measures and the maintenance of loose money policy. Should be fun.

* Treasury Secretary Geithner noted that funds received from banks repaying TARP would be used to prop up small regional institutions. This sounds like yet another misguided course of action. Shouldn't market conditions dictate who survives a downturn? I can't say this is a surprising move by the administration, however.

* CEO of Fiat was quoted today saying he would "never" walk away from the Chrysler deal. If we have learned anything from 2008, it's that meeting comments by management with intense skepticism could prove a wise decision. I am inclined to believe the Fiat CEO in this case considering Chrysler is being handed to the Italian automaker for essentially nothing.

* Frank Blake, the CEO of Home Depot (HD), continues to put his stamp on the business following the dreadful years of Nardelli ham fisted management. Today, the retailer upwardly revised its 2009 guidance not so much on improved market conditions but rather on better execution on a host of common sense initiatives. B.S.

* The decision to let Germany's Arcandor slip into the history books as a failed retailer is indeed a good one. It reflects what should happen in the world of business...those with strong models rise to the top and those with poor models get thrown to the scrap heap or get acquired. B.S.
David Silver

* The sale of Chrysler has officially been approved A day after the high court stayed the sale of Chrysler's assets to a consortium led by Fiat, the sale of Chrysler's best assets has been approved. This clears the way for the automaker to emerge from bankruptcy. The Chrysler Group would be controlled primarily by the UAW, which will own 55%. Fiat will own 20% initially. The U.S. government would own 8.0%, the Canadian government would own 2.0%, and Fiat's stake could increase to 35.0% if certain goals are met.

* "Cash for Clunkers" has almost become a reality. The House approved a measure that would give up to $4.0 billion for its cash for clunkers program. The legislation would give Americans up to $4,500 to turn in a gas guzzler and purchase a new, more fuel efficient vehicle. President Obama has already voiced his approval for the program. Clunkers eligible for the program must get 18 mpg, or less, in combined city and highway driving. The subsidy ends up benefiting more owners of light trucks and SUVs.