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Too Good To Be True?

Bank of America’s announcement today of a 41 percent decline in earnings - its fourth-straight drop - is generating the same reaction on Wall Street as Citigroup’s losses did last week: It’s bad, but not as bad as we thought.

That kind of thinking prompted a rally in financial stocks, aided by JPMorgan Chase and Wells Fargo delivering upbeat earnings reports. And it raised hopes that banks might be doing a little better than expected. Maybe, this thinking goes, the worst of the credit crisis is behind us.

To which Hale Stewart of "The Bondad Blog," says: Not so fast.

I just met Stewart over the weekend at the Netroots Nation conference in Austin. He was still annoyed that Citigroup’s $2.5 billion quarter loss on Friday was portrayed so positively. After his panel was over, Stewart told a little crowd that grew around him that if he had any financial stocks, he’d dump them sooner rather than later. Bank losses are worrisome and huge despite what the analysts say, more bank failures are imminent, and the worst is yet to come, he said.

Here’s a glimpse of Stewart’s thinking:

Ladies and gentlemen — anyone that is recommending you move into financial shares is an idiot. There are still major problems out there. Credit standards are tightening and loans are getting harder to come by even though the Fed has (again) lowered interest rates to 0% after adjusting for inflation. None of this is good news.

When it comes to bank losses reported as surprisingly good news, don’t fall for the spin.

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