Bookkeeping: Cutting Regions Financial (RF) Ahead of Stress Test

In a span of the last 30 minutes yesterday and the first few minutes this morning we've just tagged on a nice 2.4% gain in the S&P. Out of the blue - "someone" got the word its time to buy at 3:15 PM. Restaurants continue to rumble - see RUTH and CAKE today. Commercial real estate is excellent as are credit cards ... and don't forget Las Vegas casinos. Or cruise lines like RCL. Just about everything not working is now blessed.

Judging by how the market surged late yesterday and is today, I can only assume Goldman Sachs knows the results of the stress test and has positioned itself -- and if they don't sweat it, I guess no one sweats it. Saying the game is fixed would sound pouty so I won't go there, but I saw on ZeroHedge yesterday that 20% of all trades in the entire market are now via Goldman Sachs.

• This is getting surreal. Goldman principal program trading is now well over 5x compared to its customer and agency trades and a 150 million share pick up compared to last week. For yet another week, Goldman's principal trading represents more than half of all NYSE member firm principal transactions.

Think about that for a moment... they seem to be on the "right side" of the trade all the time as well (always seem to have a birdie fluttering into their ear before anyone else)... and lo and behold where are all the government financial guys funneled to and from. So if you wanted to push this market up via government agency (doing it out in the open would be unAmerican), what firm would you work the orders through? Not that something like that would ever happen in America. Perhaps there is just a sudden flow of buying by customers not named Uncle Sam via Goldman that no one else is enjoying. That must be the explanation.

Anyhow, this stress test seems not to matter to anyone judging by the market. However, I saw Regions Financial (RF) open ugly today and as we posted a few days ago

Now I just saw this story on Yahoo Finance moments ago, that was SO perfect in timing for this blog entry and SO perfect to describe what Johnson was writing about - how "the well connected financiers" (mostly of the HUGE New York variety - not the mom and pop community bank type) have literally become the oligarchs of our society .... get this: Fed Tests Harder on Regional Banks

• The government's "stress tests" of 19 large U.S. banks take a harsher view of loans than of other troubled assets, according to a Federal Reserve document obtained by The Associated Press. That approach favors a few Wall Street banks while potentially threatening major regional players.

You cannot make this stuff up ... are we surprised anymore? No. Of course not

So of course the huge banks like Bank of America (BAC) or Citigroup (C) are just fine... or will be once we put more money into them. But the stress test will hurt regionals.

So I am going to pullback on Regions Financial to a 0.5% stake until I see how things work out. Oppenheimer seems to think RF will be the only failure of the 19 banks tested. Interesting considering Regions wanted to pay back TARP just a few days ago - but they do have a lot of commercial real estate exposure. Wait... commercial real estate stocks are flying higher so why would it be a problem?

• Regions Financial Corp (RF) may be the only major bank that fails to pass the U.S. government's "stress test" and is also at risk of having to raise more equity, analysts at Oppenheimer said, and shares of the bank fell as much as 12 percent.
• Oppenheimer analysts, including Chris Kotowski, said they based their analysis on the stress test criteria reported by the Wall Street Journal on Wednesday.

I'm cutting RF back here at $5.40s ...

My sneaking suspicion is the word leaked out in the last hour yesterday that Capital One Financial (COF) "passed" the stress test with flying colors - I can't think of any other reason for a 20% gain out of the blue. Not that it's a rigged game where those in the know have access to information before others.

In the matter of 3 hours (last hour yesterday and first 2 hours today) the portfolio has managed to lose 4%... quite amazing and makes you want to throw your hands up in the air - especially when you only have a 13% gain to work with in the first place. This has been a very bad 4 weeks for us, as any short we've tried has exploded in our hands. And without knowing if this playing field is even close to even anymore, and with S&P moving in 3 point increments in 45 second spots the last hour of every day, it just is not so fun to try to be an investor. It's now been a year (4 quarters) where I've read these earnings reports, and then think "why bother, all that matters is Washington D.C. or CNBC news break". Doing homework is a useless practice now - just ask the boys at Goldman where we go next. Much more efficient.

Long Regions Financial in fund; no personal position