Swine Flu Impacts the Rally

Somebody’s lying. Bank of America CEO Ken Lewis is on the verge of getting sacked because he failed to tell BAC shareholders that he was buying Merrill Lynch for $29 billion while it was losing $15 billion in the fourth quarter of 2008. The revelation that Merrill paid out $3.6 billion in bonuses during that miserable quarter really got shareholders upset. 
Lewis said he was surprised at the bonuses. But now, former Merrill CEO John Thain says that Lewis knew about the bonuses, and approved them in writing. 
Thain’s already lost his job. Lewis appears to be on the verge of losing his. I have to think that would be bullish for Bank of America stock. Investors want to see that things are changing. They want to know that the people responsible for the mistakes that crushed the financial sector pay the consequences. Losing a job won’t fix anything, but shareholders need to flex their muscles and help clean house. 
*****The next step for troubled banks seems clear now – they are going to exchange preferred shares the government collected for TARP loans into common stock. That will dilute shareholder equity, but it will also put the banks in better capital position. 
But the bigger picture is that the government is continuing to play softball with the banks. Letting the banks exchange common stock for preferred means that the stock is being used to repay the loans. The government is accepting a toxic asset (bank stock) in exchange for taxpayer money. That stinks. 
*****The S&P 500 lost ground for the first time in six weeks last week. And TradeMaster Daily Stock Alerts technical guru Jason Cimp notes three things that are pointing to an end to the current rally: Volume is slowing, volatility is rising and energy sector stocks are weakening.  
Jason is currently holding an inverse ETF on the Dow Industrials. An inverse ETF will make money as the underlying target, in this case the Dow Industrials, moves lower. 
ETFs trade just like stock, but you can use them to make money from downside moves. And Jason has several other downside positions ready to go as soon as this rally turns. If you’d like to learn more about how you can use ETFs to profit from downside moves in the stock market, click HERE
*****More than 100 people have died in Mexico from a swine flu outbreak. Some are saying this flu is a threat to global trade. And I know one person who has cancelled a trip to the Dominican because of it. 
The Mexican peso is getting killed. So are Mexican bonds and stocks. That’s because this flu outbreak will certainly put a dent in Mexico’s $13 billion tourism industry. Domestic spending will suffer, too, as restaurants and theaters close. 
There’s a very good chance the economic impact Mexico is feeling will spread. That’s not good news for the rally. 
That’s it for today, I’ll talk to you tomorrow.

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