Too big to fail...

Is there something rotten in the Kingdom of the US ?
FED president had to testify before Congress on the mater of Bank of Amercia’s acquisition of Merrill Lynch and whether or not the Federal Reserve pressured BofA CEO Ken Lewis into going through with the deal once due diligence showed up much bigger than expected losses at Merrill.
If you want to read this testimony, you can find it here.
What really happened is that BofA wanted to dump the Merrill deal and was then told by the FED not to do it. Even if this would cause problems for the bank.
The emails relating to the specific intention to not tell the SEC what was going on by senior Fed officials was very damning. Bernanke's pathetic response that he didn't know what this senior Fed official was doing, and that he was operating on his own in his stated intention to keep the SEC in the dark is either an admission of a complete failure of leadership.

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He's back...

David Rosenberg said good-bye to Merrill Lynch just one week ago. But he’s back working for a small Canadian boutique and a must-read report.
We cite:

Since the rebound from the March 9th lows was again led by the four sectors that led the decline during the bear phase – financials, consumer discretionary, materials and industrials – it stands to reason that this was just another counter-trend rally

The fact that the best performing stocks were the ones with the lowest quality ratings and with the largest short interest says a lot about the nature of this rally as well — the 50 heaviest shorted stocks tripled the advance among the 50 least shorted stocks — that its sustainability is in doubt. In other words, this was a rally built largely on short covering
For the near-term, it matters little because the testing process does seem to be in place right now and this carries with it well-established investment patterns. Over the past year, we have seen four other testing phases (they all failed as the market did break to new lows). Under the proviso that the S&P 500 hit an interim peak back on May 8th at 930 (it is down 3% since, even with yesterday’s bounce), here is what the recent historical record tells us to expect (at a minimum, take profits).
• The average length of the testing phase is 53 calendar days and 38 business days (versus 45 calendar days and 33 business days for the interim bear market rallies).
• On average, the S&P 500 undergoes a correction of more than 20%.
• The sectors that led during the rally, corrected most during the selloff. This means that financials, consumer discretionary, materials and industrials should underperform in the next few months, while health care, consumer staples, utilities and telecom services should emerge as the leaders.

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