This week we will be reporting from chilly Liverpool in the UK where the news of the day is the $18 billion equity offering by HSBC has helped the financials rally. This financing is probably a prelude to what will need to happen with many of the U.S. banks if the financial crisis is to subside. A strong European market was accompanied by rising Asian stocks even though North Korea launched its successful missile test.
Tomorrow, Alcoa kicks off the earnings season. We expect dismal earnings reports for the next few weeks which, as we have been expecting for the past few weeks, could derail the tremendous rally we just had. Friday, the resiliency of this bear rally was evident as the week employment report didn't deter investors as stocks still rose 1%. We don't think the rally can continue much longer unless companies start to tell investors that they see some light at the end of the tunnel.
We remain concerned with consumer credit, commercial real estate, housing, the Geithner plan to rid toxic assets and expect that this powerful rally will take a turn for the worse as companies report. Be cautious and tread lightly in this environment. We will be hedging the portfolio with puts starting today.
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