The only result of the stress test is:

Keep in mind that the end result of the stress tests, the banks converting their preferred to common, is that the banks can lower their interest expense. That’s it. The only thing that does for them is buy them time to try and earn their way out of the hole in their balance sheet. The government is giving them the chance to try and do this which in turn is just the continuation of the zombification of banks. The problem is the losses on their balance sheet are going to be larger than their earnings for the next 12 months.

The only decline the government has succeeded in stopping is the decline in stock market. I doubt they can keep it that way much longer.

Here’s why:

• Technically
  
  
  
  • Just like the longs will capitulate on the way down, the shorts will capitulate on the way up. After a 40% rally it’s safe to say that many of the shorts have capitulated.
    
  • Volume, as seen in the SPY ETF, has not been increasing.
    
  • The market has gone up for almost 2 months straight.
    
  
  

• Fundamentally
  
  
  
  • Many employees are hanging onto their jobs by a thread. This would include:
    
    
    
    • Car salesmen
      
    • Farm equipment salesmen
      
    • Investment Bankers
      
    • Realtors
      
    • Stock Brokers
      
    • Mutual Fund Managers
      
    • Reporters
      
    • Journalists
      
    • Retail Cashiers
      
    • Pilots
      
    • Hotel managers
      
    • Travel agents
      
    
    
  • Many other employees are running around like turkeys, not realizing that thanksgiving is coming early this year and their job will be cut off:
    
    
    
    • Mortgage brokers (How many people are left to refinance?)
      
    • Waiters (Restaurants have barely kept afloat on coupons. The coupons have to end sometime.)
      
    • Nurses (Believe it or not, less people are going to the Dr./Hospital)
      
    • Pharmacists (People can’t afford their drugs.)
      
    • Teachers (Wait till that tax levy fails)
      
    
    
  • More homeowners are hanging onto their houses by a thread. Why?
    
    
    
    • More homeowners are losing their jobs.
      
    • More homeowners that aren’t losing their jobs are taking a pay cut.
      
    • More homeowners that are unemployed will lose their unemployment benefits.
      
    • Taxes are increasing on things like license plates, sales tax, state income tax.
      
    • This isn’t getting much attention, but gas prices have increased recently too.
      
    
    
  
  
• Valuation
  
  
  
  • If after tax earnings on the S&P 500 will only be $50, then at 920 on the S&P 500 that’s a 18.4 PE. An 18.4 PE is 5.5% yield. If the growth rate going forward is only going to be 2%, then that’s a 7.5% rate of return.
    
  
  

None of these reasons will come as a surprise. Unsurprised investors won’t sell in a panic, but instead will sell because they are discouraged at the results of the market. That will be a slow steady decline. Slow declines aren’t great for shorts and are best for bond investors.