The Truth Behind Bank Earnings

If you look at “pretax, pre-provision profits”,
which excludes taxes, loan loss reserves and one-time items, profits fell
40% year over year.
That’s clearly not a good
trend for the banks. So how did banks post such good “headline” profits?
Loan loss reserves, as we have discussed. Banks have been aggressively
moving loan loss reserves back to the asset side of the balance sheet. And
that’s accounted for the lion’s share of 1Q earnings. It also leaves the
banks less protected if the economy tanks again…

The End of QE2

I’ve been writing Daily Profit every day
since October of 2008. I may have a missed a day or two. And I’ll be
honest, sometimes the market news is so boring, it’s really difficult to
come up with anything worth discussing.

One of the thing’s I Iove most about the markets
is that they change virtually every day. There’s always something new to
assimilate. If you’re a perpetual student like I am, there’s always
something to learn.

What Obama’s Budget Speech Means for Your Retirement

In a speech at George Washington University today, President Obama outlined
his proposal to cut the federal deficit by $4 trillion in the next 12
years.

And with $65 trillion in current unfunded liabilities for Medicare,
Medicaid and Social Security, it should be no surprise that cuts to these
programs are in the works.

Medicare and Medicaid spending alone amount to $12,000 a year per recipient
right now. At the current rate, that amount will balloon to $44,000 a year
by 2040.

Indeed, according to a study done by Mary Meeker from Kleiner Perkins
Caulfield & Byers, the Congressional Budget Office reports that if
nothing is done about entitlement and debt, “…entitlement and net
interest payments combined will equal all federal revenue by 2025, just 14
years from now.”

More Raises for CEOs (brk-a, brk-b, lz, aig, gm)

Stocks look poised to push higher again this week.
The S&P 500 is on the cusp of a break above resistance at 1,335. And
that would likely set up a test of the post-crash highs at 1,344.

But as Jason Cimpl told his TradeMaster Daily
Stock Alerts
members this morning, earnings are coming
and stocks have been relentless since recent lows:

Although the market participants have
seemingly not cared about economic data for the past few weeks, the
market will not move higher if earnings disappoint. And earnings season
will officially begin next week. Even though the bulls look unstoppable
now, and to a large degree they have been over the past eight months, a
poor earnings season will awaken the bears.

Additionally, I would prefer the market fall
to 1301, which lets the bulls regroup before they take stocks to new
highs.

Alcoa (NYSE:AA) starts earnings season next
Monday, April 11.

Is Ron Paul Right?

It’s the first day of the second quarter, and also April Fool’s day, so
be on your guard. The first day of the month has been an overwhelmingly
bullish day ever since the stock market bottomed in March 2009. And the
first day of a new quarter has also been bullish, as new money gets put
to work by mutual funds.

Today we also have a strong non-farm payroll number to propel stocks
higher.

The economy added 216,000 new jobs in March. This is a net number that
includes job losses at the government level. Private hiring has now
topped 200,000 jobs for two months running, for the first time since
2006.

The government published unemployment rate fell to 8.8%. And while that’s
still unacceptably high, it’s an improvement.

Whether or not we can give the Fed any credit for helping the jobs market
with QE2, today’s jobs number increases the odds that the Fed will stand
down in June, and not move directly into another round of stimulus QE3.

And while we’ve discussed the end of QE2 as a potentially bearish
catalyst for stocks, it could also be considered a sign of confidence in
the U.S. economy. I know that might seem like a stretch, and I still
expect there to be some kind of correction ahead of June (sell in May?).

Insider Trading at Warren Buffett’s Berkshire Hathaway?

One of Warren Buffett’s top
executives at Berkshire Hathaway has resigned amidst a swirl of insider
trading controversy. Former MidAmerican CEO David Sokol bought $10 million
worth of Lubrizol (NYSE:LZ) before he suggested a Berkshire-Hathaway buyout
of the company to Buffett.

Lubrizol stock jumped nearly 30% on the news that Berkshire would acquire
the company. Sokol made nearly $3 million on the deal. And he is insisting
that he did nothing wrong.

Individual investors are up in arms about this case, as it appears
inappropriate, at best.